Q: Hello, There was a NR today stating that Hammond Power will be increasing its Planned Capex by $20 mln, over 2024 and 2025, to support current capacity bottlenecks for its custom power transformers portfolio resulting in significant addition to its revenue capacity. Is this significant ?
Does it further solidify company's position as a dominant supplier in speciality transformers segment of the market ? And, given the recent volatility in the stock, how should investors be positioned for next 3-5 years ?
Thank You
Thank You
Does it further solidify company's position as a dominant supplier in speciality transformers segment of the market ? And, given the recent volatility in the stock, how should investors be positioned for next 3-5 years ?
Thank You
Thank You
5i Research Answer:
HPS.A just recently announced an increase in capex by $20M over the next two years to expand production capacity to address its capacity bottleneck and add to the company’s revenue capacity. We think increasing its capex to meet strong demand is good news for shareholders (as long as the capex is not to be used for highly speculative investments). We think this could continue to be a good investment for long-term shareholders given HPS.A’s business model of achieving a high Return on Equity over the years.
HPS.A is only trading at 17x Forward P/E and is expected to grow in the range of 8%-10% over the next few years. We would be comfortable holding HPS.A for the long term and averaging into the position at the current price.