An introduction to Amcomri Group (LON:AMCO)

Gathering UK industrials

Frustratingly, in the time since I began writing this piece Amcomri’s share price has risen 29%. Although it is less good value now, I think the group remains an interesting proposition.

Summary

Amcomri Group is a microcap with a market cap of £44 million at the time of publishing. It is an illiquid stock and there is limited publicly available information about the group due to its short lifespan, particularly as a listed company. For these reasons, I currently only hold a small amount of shares within my trading portfolio.

Amcomri was established in 2022 as a group of UK based engineering and manufacturing SMEs. It listed on London’s AIM market in December 2024 and had 359 employees at the time of the IPO across 12 operating companies. Since then, it has made one acquisition of EMC Elite Engineering Services.

Amcomri’s companies serve a diverse range of industries including rail, power, oil & gas and defence. Subsidiaries provide essential specialist products and services to customers with whom they typically enjoy long standing relationships. These factors make the group resilient to adverse economic conditions and enhance the longevity of its businesses.

The group has a “Buy, Improve, Build” strategy. It particularly seeks firms where a founder is retiring and there are limited options for succession within the existing business. Some buyers are put off by such situations, preferring instead to acquire businesses with management in situ and this tempers competition for deals.

Amcomri doesn’t overpay. Historical deal consideration has averaged three to four times earnings-before-interest-tax-depreciation-and-amortisation (EBITDA) and management is targeting between three and five times EBITDA in the future. This valuation discipline should drive high return-on-equity (ROE) for the group, which should in turn translate to elevated shareholder returns.

The Amcomri management team are highly experienced in turning around businesses, having previously worked together at special situations investor Hilco Capital. They are also adept at valuing and acquiring assets. While Amcomri itself is not in general an acquirer of troubled companies, this combination of skills drives the “Improve “ and “Build” aspects of the group strategy. The “Build” component quite often involves bolt-on acquisitions to existing operating companies and these are sometimes purchased out of administration.

Almost 50% of outstanding Amcomri shares are held by directors with nearly 40% of these held by founder Paul McGowan. Executive remuneration aligns with shareholder interests and is not excessive. No pre-existing shareholders sold at IPO which raised £10.2 million of net proceeds being used for acquisitions and paying off debt.

At the time of publishing, Amcomri’s shares are priced at roughly eleven times underlying earnings and less than nine times on an enterprise value to underlying earnings-before-interest-and-tax (EV/EBIT) basis, using my own estimates. If I am right about the future trajectory of the group then the this valuation is likely to expand significantly.

Finally, as a collection of purely UK facing businesses, Amcomri is more immune than most to the vicissitudes of “geoeconomics”. In particular, the integral nature of its services provided at close proximity to customers, who themselves often operate in non-discretionary sectors, ought to protect the group from the consequences of the ongoing trade war and situation unfolding in Taiwan.

Business & strategy

Amcomri seeks to improve the growth, profitability, cash conversion and internal processes of the businesses it acquires. Most changes usually take place during a transition period when the prior owner (often a founder) is still active in the business. Initially, the focus is on margin and costs, followed by organic growth plans once the commercial aspects of the business are better understood. However, given the small size of companies purchased by Amcomri (turnover between £2.5 million and £15 million and EBITDA between £0.5 million and £2.5 million), cost efficiencies are usually fairly limited.

Quite often, newly acquired businesses are underinvested because the former owners have optimised for short-term profitability in order to maximise the sale price. Consequently, in these cases Amcomri will increase costs (such as sales and technical resources) shortly after taking control, temporarily suppressing earnings until the returns from such investments emerge.

Amcomri has made 17 acquisitions since 2016 (although Amcomri Group was not formally established until 2022). These consist of 13 operating companies and four bolt ons/asset purchases. The group has two divisions called Embedded Engineering and B2B Manufacturing, and total revenue is roughly evenly split between them.

Embedded Engineering Division

Businesses in this division typically provide specialist engineering services to major UK energy, transportation and infrastructure clients. Often these services ensure the safety and regulatory compliance of complex large-scale assets such as electrical systems, power plants and petrochemical facilities.

Over recent decades, major UK industrial companies and government owned organisations have outsourced technical engineering capabilities to specialist providers as they were considered to be non-core functions. As a result, there exists a fragmented market of small-scale engineering businesses, providing Amcomri with an attractive investment universe.

In many cases, such firms lack the sophisticated internal processes of larger corporations. This provides the opportunity for Amcomri to execute the “Improve” component of its strategy. Financial management, business development and continuous operational improvement are generally areas ripe for enhancement.

Technical skills shortages are commonly a restraint on growth for businesses within the Embedded Engineering division. Amcomri engages with local education providers to promote careers in engineering and manufacturing and provides apprenticeship opportunities to help address this risk.

The Embedded Engineering division earns higher profit margins and a higher return-on-capital-employed (ROCE) compared to the B2B Manufacturing Division. One reason for this is that, as a collection of services businesses, fixed asset requirements are modest. Another reason might be the aforementioned scarcity of technical expertise within the marketplace.

Industrial Valves Services Limited (IVS)

Acquired in 2017, IVS maintains, repairs and re-certifies industrial valves. These services are integral for ensuring safety, compliance with regulations and extending the useful life of capital equipment. IVS’ revenue has increased four times since 2020 with operating margins reaching 15% under Amcomri’s ownership.

In an example of the “Build” element of Amcomri’s strategy, IVS purchased Reliance Control Valves in 2018 as a bolt-on acquisition. This enabled IVS to add the repair, maintenance and re-certification of specialist flow control valves to its offering.

In 2021, this was followed up with the purchase of assets from Emerson Electric Co including a facility in the Pembroke area which had previously served the local Valero oil refinery. Subsequently, IVS secured a new long-term contract with Valero Energy to service their Pembroke refinery.

When Amcomri acquired IVS in 2017, the business was distressed and so the purchase price was discounted. Amcomri quickly established a new leadership team and introduced an appropriate incentive plan for key employees that led to a successful turnaround.

IVS has been a major success for Amcomri to date. It illustrates how management’s years of combined experience carrying out similar restructurings at Hilco Capital can be applied to Amcomri to generate incremental value for shareholders.

The former CEO of IVS who oversaw the dramatic improvement in the company’s fortunes, Steve Jones, is now Group Industrial Director of the embedded engineering division.

Kestrel Valve and Engineering Services Limited

Kestrel was acquired in 2023 and is a similar business to IVS in that it provides maintenance and re-certification services for industrial valves. Unlike IVS, it is focused on the energy-from-waste sector and its integration into the group has added further expertise in control valve technology.

Kestrel and IVS are both “Emerson Accredited Service Providers”. Emerson Electric is one of the world’s largest process valve manufacturers and there are only seven independent Emerson accredited service facilities in the UK. Three of these are owned by Amcomri: IVS Pembroke, IVS Swansea and Kestrel Valve.

Spiral Weld Limited

Spiral Weld offers rotational weld services to a variety of industries including conventional and nuclear power, oil and gas, water and marine propulsion. The company was acquired in 2023 and has a 30 year history repairing large rotating industrial shafts such as ship propeller shafts, high pressure steam control valves and gearbox shafts.

Spiral Weld’s life extension services reduce shutdown time for customers because they delay the need to source new components which can have lead times of several months. The company uses a continuous overlay process and sometimes dissimilar metals to improve corrosion resistance.

WJ Projects Services Limited (WJPS)

WJPS was acquired in October 2023 and provides engineering services to owners and operators of high voltage (HV) electrical systems found in the UK’s rail network and power grid. It specialises in rail infrastructure, which is an attractive market given the UK’s train network is currently only 42% electrified.

WJPS designs, installs, tests and commissions the electrical protection system (EPS) that control the switches of a HV electrical system. The company offers a turnkey solution to clients including procurement, installation and testing, and contracts typically fall under multi year “framework” agreements.

WJPS was a major acquisition for Amcomri who agreed total consideration of £14.4 million for the business. Over £2 million of this was deferred (with half of this dependent on future performance) and WJPS had £6.9 million of net current assets at the time of the deal, much of which was quickly converted to cash. The company saw strong growth in the year to March 2023, with revenue rising 84% to £5.2 million and operating profit more than doubling to £1.6 million.

WJPS might be vulnerable to the transition to Control Period 7 which has reduced activity at the likes of Renew Holdings (LON:RNWH) and Tracsis (LON: TRCS). If WJPS is affected, then the acquisition might prove to have been ill-timed given it was completed just prior to the start of Control Period 7 in April 2024. Just last week, Amcomri released a market update confirming positive group trading and so perhaps WJPS has made it through unscathed. In any case, UK net zero targets imply a strong trading environment for this subsidiary over the longer term.

EMC Elite Engineering Services Ltd (EMC)

The acquisition of EMC was announced on 1 April 2025. It is a mechanical and electrical engineering service provider to the power generation, process and aggregate industries.

It brings to the group significant large rotating equipment maintenance and overhaul expertise. In this regard it might dovetail nicely with Spiral Weld given the latter’s specialism in repairing rotating shafts.

In addition, EMC offers electrical engineering services for low and medium voltage electrical systems, power generators and renewable energy storage systems. This complements WJ Projects high voltage services and provides an entry for the division into the high growth renewable sector.

Amcomri paid £2.5 million up front for EMC, with a further £1.5 million due over three years plus earn-outs dependent on performance. EMC reported profit before tax of £0.9 million for the year ended 31 August 2024.

TP Matrix Limited

TP Matrix was acquired in 2021 and supplies, services and repairs electronic products primarily used in trains. In 2023, servicing and repair revenues (which tend to consistently reoccur) contributed 65% of total sales.

As well as providing new technology, TP Matrix also helps its customers manage obsolescence risk by maintaining old technology still used on trains. Incredibly, such technology includes fax machines and TP Matrix started out repairing and making circuit boards for fax machines when it was founded in 1996. I wonder if they still provide these services today.

I also wonder if the proposed re-nationalisation of train operators in the UK will impact TP Matrix. Perhaps nationalisation will even work to their benefit if it delays the replacement of ageing rolling railway stock which requires intensive maintenance.

When Amcomri acquired TP Matrix, it was solely managed and owned by the vendor. Amcomri installed a new management team and recruited additional sales people and while this initially suppressed margins, they subsequently bounced back and reached record levels. Therefore, this is another case where Amcomri has demonstrated the ability to “Improve” the performance of one of its aquirees.

Etrac Limited

Etrac provides systems integration, engineering consultancy and maintenance services for trains. It tests and fixes electric traction, control and display equipment. Etrac was acquired in 2022 and at the time had five technical staff and two main customers, being Alstom and Govia Thameslink Railway.

Etrac offers a fast turnaround for train and carriage electronics repairs and the business has been partially integrated with TP Matrix. Staff from the two companies are collaborating and Etrac’s services are now offered to TP Matrix’s customers.

Etrac has developed a variety of simulations including specialised equipment to comprehensively test systems which it has serviced prior to their return to customers. This type of internally generated capability is a feature of the businesses within the Embedded Engineering division and hints at competitive strength.

Blundell Production Equipment Limited

Blundell distributes and services equipment used for assembling printed circuit boards (PCBs) in the UK and was acquired by the group in 2016. It supplies products, technical support and training on behalf of global electronics manufacturing companies such as Yamaha, Kurtz Ersa, Creative Electron and Fritsch, sometimes on an exclusive basis. In addition, Blundell stocks an extensive range of spare parts covering the equipment which it supplies.

Commissioning, training and support provided by 12 engineers generates roughly 40% of Blundell’s revenue. I suspect that this part of the business is fairly lumpy given it is somewhat driven by its customers’ capital project spend. On the other hand, the spares business is likely to have a smoother revenue profile.

The direction of travel for the UK PCB assembly market is perhaps worth considering. While overseas manufacturers have cost advantages due to cheaper labour and energy, UK operators can offer shorter lead times and better service to domestic customers. As electronics continue to proliferate, with a major recent example being the advent of electric vehicles, the UK PCB industry should be able to retain relevance despite fierce competition from abroad.

B2B Manufacturing Division

The B2B division provides niche manufactured products to end markets such as aerospace and defence, process industries and the medical sector. As with the Embedded Engineering division, Amcomri acquires businesses which it assesses have improvement opportunities that the group has the skills and resources to realise.

Given strong competition from low cost countries, UK manufacturing SMEs have become increasingly more specialised. This dynamic provides a pool of acquisition opportunities for Amcomri which seeks businesses that compete on service rather than purely on price. Typically, such value-added services feature short lead times, small minimum order quantities and tailored advice.

The manufacturing division makes three main types of products. These are gaskets and seals, printed tape and precision engineering.

JA Harrison & Company Limited

JA Harrison was acquired in 2021 and supplies a broad range of gaskets and seals made from a variety of materials to multiple industries. In particular, it manufactures polytetrafluoroethylene (“PTFE”) components which have specialist applications in the pharmaceutical, food and chemical sectors. PTFE is suitable for harsh environments given its inert nature, low friction coefficient and extreme temperature tolerance.

The company provides technical support to its customers who tend to have bespoke requirements. For example, its team was able to reverse engineer a part made from PTFE for a sewage works for which no precise drawings existed. Its reverse engineering capabilities help customers manage obsolescence and in this regard it offers a similar value proposition to TP Matrix within the embedded engineering division.

JA Harrison’s has Approved Vendor Listings (AVLs) with UK oil refineries such as Exxon Fawley and Essar Stanlow. These AVLs are scarce as the operators are looking to reduce suppliers. As with the accreditations held by other portfolio companies, this provides JA Harrison with a barrier to entry.

In 2023, JA Harrison acquired various assets from Gee Gaskets Limited which was in administration. This enables JA Harrison to manufacture specialist graphite gaskets and it has since won business with steam equipment provider Spirax Group (LON:SPX) for these parts. Here is another example of the “Build” component of Amcomri’s strategy in practice.

JA Harrison makes many of the seals required by the customers of sister companies IVS and Kestrel when reinstalling the valves the latter have serviced. This opens up the possibility for cross-selling opportunities.

Premier Limpet Limited

Premier Limpet was acquired in 2021. It manufactures and distributes 40 million square metres of printed and plain adhesive tape per year to trade customers from its facilities in Cambridgeshire and Hertfordshire.

As is typical for Amcomri companies, Premier Limpet provides tailored advice to its customers, supplying them with the correct tape for their packaging needs. Customers also desire fast turnaround and Premier Limpet offers a choice of 10 day or 20 day lead times for its conversion and printing services.

Premier Limpet makes tape from various materials including water activated adhesive paper tapes, which are fully biodegradable and so are in strong demand. In 2024, the company acquired the assets of Supreme Tapes and Converting Limited which has an established position within this attractive market.

After Amcomri bought Premier Limpet, it repositioned the business to focus on profitability which resulted in a 20% fall in revenue from 2022 to 2023, but a 50% increase in EBITDA to £1.6 million in FY 2024. On top of this, improved inventory management saw £1.8 million of cash recovered against an initial purchase price of £4.1 million.

Bex Design & Print Ltd

Amcomri purchased Bex in 2022 and it is the second specialist print company to be acquired by the group after Premier Limpet. Bex services the electronics, medical and green energy sectors and specialises in “thick film substrate” printing. It has invested in advanced technology which enables it to provide a wide range of cost effective products which are suitable for customers with short run requirements.

As with other Amcomri businesses, Bex’s in house design and production capabilities enable fast lead times and a tailored service.

Drurys Engineering Limited

Drurys provides precision engineering, machining and assembly services to aerospace and industrial customers. It was acquired in 2024 and has expertise in specialist manufacturing techniques including fine grinding, spark erosion and deep-hole drilling.

Drurys ran into difficulties under its prior owner which allowed Amcomri to purchase it at a discounted price out of administration. This is another example of Amcomri’s management team applying their experience as special situation investors.

Amcomri stabilised the business within two months post acquisition, having normalised the working capital position and addressed previously difficult supplier and customer relationships.

Drurys operates under aerospace and defence accreditation AS9100 as well as ISO 9001 signalling the high quality of its work.

Claro Precision Engineering Limited

Claro was acquired in 2024 from the same troubled owner that previously held Drurys. Like in the case of Drurys, Amcomri successfully repaired stakeholder relationships shortly after the takeover bringing much needed stability.

Claro is a machining subcontractor and manufacturer of precision parts with services ranging from design, to CNC milling and turning, through to assembly. It has customers in the medical, aerospace, subsea and electronics industries.

As with most of Amcomri’s businesses, Claro holds various industry certifications including AS9100 for defence and aerospace and ISO 13485 for medical devices.

Key people

Major shareholders and Hilco

Paul McGowan is the founder, largest shareholder (with a 38.8% holding), and deputy chairman of Amcomri. He is also the founder and executive chair of Hilco Capital, a joint venture with US based Hilco Global that was set up in 2000.

Hilco Capital is a UK based private special situations investor and asset-based lender with a portfolio that turns over more than £1 billion annually. It has made over 70 investments to date and writes over £150 million of loans per year.

Hilco Global was founded and is still operated by another major Amcomri shareholder (13.1%) and Chicago native, Jeffrey Hecktman. Hilco Global is a diversified financial services business that was originally named The Hilco Trading Company and set up in 1987. It has more than 800 employees and $3 billion in assets under management.

Hilco Capital is active in the UK, Canada, Australia and Western Europe. It has contributed to the creation of over $1 billion of shareholder value within the wider Hilco Global group over the past 25 years. This has been achieved through extracting value from distressed situations mainly within the retail sector, but also including manufacturing and industrials.

Hilco Capital is a turnaround specialist, often working closely with underperforming businesses as well as providing them with capital. Being private, Hilco’s investment returns are not publicly available and so all we have to go on to judge its performance are publicly available case studies. Included in the appendix at the bottom is a case study of Hilco Capital’s turnaround of furniture maker Moores under the leadership of Amcomri’s current CEO, Hugh Whitcomb.

Amcomri executives

Hugh Whitcomb owns 6.5% of Amcomri and was previously a Lead Advisory Partner at Hilco Capital from 2012 where he specialised in the industrials sector. He is a Chartered Mechanical Engineer with 42 years of experience in operational and investment management across sectors including power, petrochemicals and general manufacturing.

CFO, Siobhán Tyrrell, spent six years working in private equity prior to joining Amcomri in 2022.

Investment Director, Mark O’Neill, owns 2.6% of Amcomri and was at Hilco Capital from 2012 where he worked on distressed, turnaround and direct lending investments. He has been employed by Amcomri since 2020 and leads the sourcing and execution of acquisitions.

Steve Jones, who led the successful turnaround of portfolio company IVS as its CEO, is the Group Industrial Director of the Embedded Engineering division. He is a qualified Mechanical Engineer with 22 years of experience in the engineering industry.

Mark Mullen is the B2B Manufacturing division Group Industrial Director and has more than 25 years of experience. Over the past 12 years he has specialised in driving operational improvement within a variety of industries across a broad range of geographies.

Four young professionals: Rhiannon McGowan, Ollie MacDonald, Charlotte Bowyer and Matt Whitton round out the group leadership team. Rhiannon McGowan and Ollie MacDonald are investment managers and Charlotte Bowyer and Matt Whitton are engineers providing additional support to operating companies.

Remuneration

Amcomri’s Long Term Incentive Plan (LTIP) limits the number of shares issued over any ten year period to 10% of the company’s ordinary share capital. The value of shares awarded to an individual in any given year will not normally exceed 100% of their base salary, although this can rise to 150% in exceptional circumstances.

The first awards under the LTIP were granted at IPO and represent options worth between 34% and 80% of each employee’s base salary at the issue price (55 pence). They vest after three years based on achieving “Adjusted EBITDA” targets over this period and total shareholder returns of at least 8% per year, with full vesting at 18%.

Amcomri’s definition of Adjusted EBITDA is not entirely to my liking (see below), but I am fairly comfortable that it broadly captures underlying business performance and so is acceptable for the purposes of the LTIP. An 18% stretch target for shareholder returns is robust and the potential size of the awards does not seem excessive with shareholder dilution well contained (as you’d expect when directors own half of the company).

Financials & valuation

In the year ending December 2024, Amcomri generated £58.1 million revenue, up 23% compared to £47.0 million in 2023. Adjusted EBITDA was up 33% to £7.7 million from £5.8 million in 2023. The main driver of this improvement was full year contributions from Spiral Weld, Kestrel and WJPS which were acquired during 2023, and part year contributions from Drurys and Claro, acquired in 2024.

EBITDA

The Adjusted EBITDA figures quoted above exclude both acquisition costs and non-trading exceptional items. These totalled £1.4 million in FY 2023 and looking ahead, I expect such costs to remain a feature of the accounts given the acquisitive nature of the group. However, they should remain relatively stable as they depend on the cadence of acquisitions and I am expecting only a couple of these per year.

If exceptional items start to rise significantly, then this might imply that something has gone awry with the underlying business strategy. But as long as they remain reasonable then I am happy to exclude them for valuation purposes. This is because they more closely resemble investments rather than costs in my view.

It is also worth noting that Adjusted EBITDA is prior to lease costs which currently run at around £0.8 million per year. I prefer to include these in my definition of underlying EBITDA because they are real and ongoing costs. Therefore, underlying EBITDA for 2024 was £6.9 million.

Cash flow

Purchases of tangible and intangible assets were relatively small in the three and a half years ending June 2024. Total spend was £2.2 million against total adjusted EBITDA of £17 million over the same period. The group has fairly light capital expenditure requirements which is a boon for free cash flow and return on capital.

Closing working capital (defined as inventories plus trade receivables less trade payables) has fallen from 29.7% of revenue in calendar year 2021 to 24.3% for the twelve months ending June 2024. Different operating companies will have naturally different working capital requirements and timing effects can distort this measure, so the reduction has not necessarily been driven by management actions. That said, operating companies are encouraged to actively manage inventories and it is good to see working capital moving in the right direction given this improves cash flow.

Earnings multiples

EMC earned profit before tax (PBT) of £0.9 million in the year ended 31 August 2024. If we add this to the group underlying EBITDA figure for 2024 mentioned earlier of £6.9 million, we get £7.8 million in normalised underlying EBITDA.

I estimate that group maintenance capital expenditure is running at around £1 million per year. This is based on total capital spend of £0.5 million for the first half of 2024.

Subtracting this gives £6.8 million in normalised EBIT before considering the incremental costs of being a listed entity. At a guess, these might be £0.5 million per year to leave us with £6.3 million in EBIT.

House broker Cavendish estimates that net debt post IPO was £6.2 million. Since then, Amcomri has acquired EMC Elite Engineering Services for £4 million plus up to £840 thousand in earn-outs depending on EBITDA performance over the next three years. Therefore, let’s assume net debt is £10.4 million (£1.5 million of this is deferred consideration and payable over three years but to be conservative let’s include it all upfront).

At the time of publishing, Amcomri has a market capitalisation of £44.4 million and so its enterprise value is £54.8 million (based on my estimated net debt of £10.4 million), about 9 times my normalised EBIT of £6.3 million.

Assuming a 10% interest rate on £10.2 million of net debt equates to £1 million of interest expense. Therefore, normalised pre-tax profit is £5.3 million, or roughly £4 million of after tax giving a price-to-earnings ratio (PE) of about 11.

This is quite cheap, although that is also true of many stocks in the UK right now. What is more interesting to consider, is the ongoing return on capital that Amcomri is likely to earn on reinvested profits as this will determine long-term shareholder returns.

Considering long-term returns

For a hint of what might be to come, we can consider the group’s capital allocation record to date. We already know that the group has historically paid less than four times EBITDA for acquisitions which gives us a rough guide of what to expect.

Section 15.6 of the Additional Information part of Amcomri’s admission document states:

“The maximum total consideration paid for all acquisitions by the Group is £28,710,500, comprising £20,902,000 of upfront consideration and £7,808,500 of deferred consideration, of which £3,849,500 deferred consideration remains outstanding as at the date of this document”

Let’s assume that all £28.7 million of consideration is ultimately paid out. This figure is before the EMC deal and so underlying group EBITDA for 2024 of £6.9 million (also per EMC) is the best starting point to calculate the return on this spend. Taking out £1 million for maintenance capital expenditure gives EBIT of £5.9 million, representing a return on capital of just over 20%.

Group earnings are after paying central costs and executive remuneration alone was £1.1 million in 2023. Therefore, the combined EBITDA of the operating companies pre central costs was at least £8 million in 2024. Total consideration of £28.7 million divides into £8 million 3.6 times, which aligns with what we know about historical deal multiples.

As the group scales, central costs should reduce as a proportion of total expenses and so return on capital should trend towards that implied by deal multiples. This depends on the acquired businesses at least maintaining their level of earnings and any significant internal investment projects delivering similar returns. I think these assumptions are reasonable given acquisitions made to date have performed well, and capital expenditure has so far been limited.

Another point to consider is that deal multiples might rise as the group grows due to fewer opportunities of meaningful size, but probably not by too much. Also, some acquisitions won’t work out, but they should be balanced by those that outperform. Still, perhaps it is too a little too aggressive to assume that the group can sustainably generate a ROCE of over 20% (as implied by historical acquisition multiples), but 15% strikes me as achievable.

Over time, Amcomri’s share price performance should tend towards its sustainable ROE given the group intends to reinvest profits rather than pay dividends. Management has a target of maintaining net debt at less than twice EBITDA, which, when combined with deal multiples of less than five times EBITDA, implies a capital structure of 40% debt to 60% equity.

If I am right that Amcomri can consistently generate ROCE of 15%, then assuming a 10% cost of debt we get an ROE of 14% ((15%-(10%*40%))*(1-25%)/60%) based on the above capital structure. That the stock is starting from a low valuation further supports the case for annualised shareholder returns in the mid teens over the medium to long term.

Discussion

One aspect of Amcomri which gives me doubts is that it operates two divisions with fairly different characteristics. On the engineering side, there is not much inventory or capital expenditure to worry about, but nurturing technical talent is essential. Within manufacturing, maintaining operational efficiency is paramount to preserve the fast turnaround times that customers rely on. I worry that these differences might make the group difficult to manage, impacting operating company performance — complexity dampens growth.

Even within each division, companies are not always similar. For example, as a supplier and servicer of PCB equipment, Blundell has little in common with valve maintainers IVS and Kestrel, and none of them are much like Etrac or TP Matrix, which look after electronics on trains. Similarly, adhesive tape manufacturer Premier Limpet is quite different from gasket supplier JA Harrison on the manufacturing side.

Synergies do exist between some operating companies, such as IVS, Kestrel and JA Harrison which share similar customers providing cross-selling opportunities. Another example is Etrac and TP Matrix, which both serve train operators. However, not enough of these cases exist to make me think they will have a material impact on group finances.

Compare the Embedded Engineering division with Renew Holdings, which has been one of the best performing London listed stocks of the past 15 years. Like Embedded Engineering, Renew is acquisitive and provides maintenance services to industry, but unlike Embedded Engineering, it is exclusively focused on repairing and renewing critical infrastructure.

That’s not to say that I don’t think Amcomri will be successful under its current strategy. Judges Scientific PLC (LON:JDG) shows that an acquisitive model can still be highly effective even when synergies between operating companies are infrequent. Judges focuses on makers of niche scientific instruments which do not necessarily have much in common with one another. This has not stopped it from delivering a ten year total shareholder return of 17.5%.

An advantage of creating a group of diverse businesses is its resilience to fluctuating economic conditions. In addition, Amcomri’s businesses often provide goods and services which are integral to the safety and proper functioning of customers’ operations. This dynamic fosters trusted long-term customer relationships, enhancing the lifespan of subsidiaries which have an average age of 40.

Amcomri’s operating companies hold a broad range of specialist accreditations and in many cases have developed bespoke internal systems for servicing customers. Quite often, there is also an industry-wide shortage of technical skills and these factors combine to make it difficult for new entrants to compete.

This might explain why the group generates healthy profit margins despite the maturity of its markets. Based on my underlying EBIT estimate of £5.9 million, group EBIT margin was a healthy 10% in 2024.

A common theme across portfolio companies is their ability to mitigate obsolescence risk on behalf of customers. For example, JA Harrison can reverse engineer undocumented parts and TP Matrix preserves antiquated electronic systems on ageing trains. This reminds me of Solid State PLC (LON:SOLI) (I own), which specialises in sourcing hard to find replacement parts, and has delivered excellent long-term returns for shareholders.

Amcomri’s focus on acquiring UK facing businesses is an attractive feature in the current environment. Trump’s trade war and the brewing Taiwan situation promise continued disruption for outward facing businesses. It is unlikely that Amcomri is completely immune given the interconnectedness of the economy, but it should fare better than most. The increasing desire for firms to mitigate supply chain risk might even drive a renaissance in British industry, although I see that outcome as unlikely.

A disadvantage for industrial businesses operating in the UK is the cost of energy, which is among the highest in the world. The B2B Manufacturing segment is directly impacted and the Embedded Engineering division might suffer due to the effect on its customers. The Labour government is promising that more renewables will bring down energy costs, but my feeling is that the opposite is more likely (at least in the short-medium term). In any case, I don’t view energy prices as a huge risk because Amcomri’s manufacturing businesses do not compete primarily on price and Embedded Engineering’s customers are often operating assets of national importance.

Amcomri listed on AIM in December 2024, during a period when there were few other IPOs. In years when markets are inflated, floats are plentiful and many prove to be overpriced in hindsight (see 2021 IPO vintage for details). Shouldn’t it also follow that in barren years, the companies that make it public are likely to represent interesting investment opportunities?

This doesn’t change the fact that there is limited publicly available information about Amcomri as is true of all recent listings. On top of this, Amcomri is young, having been formed in 2022 (although the first acquisition of Blundell dates back to 2016 under a preceding structure).

Consequently, the content of this report is almost entirely sourced from documents provided by Amcomri. This might lead to bias. For instance, I’ve probably picked up most of the success stories among Amcomri portfolio companies, but could easily be missing details about deals which have not worked out so well.

A truism of investing is that small companies have the potential for big returns and Amcomri fits into this category. The group is led by an experienced and well-aligned management team executing a logical and sustainable strategy. Operational complexity may ultimately moderate returns, but this is somewhat offset by an undemanding starting valuation. A lack of trading liquidity in the stock and its short listed history mean that I remain cautious for now, with only a small position in my trading portfolio.

Appendix

Moores is a Wetherby based kitchen and bathroom furniture manufacturer.

Hilco backed a management buyout of Moores in 2017 and in 2019 the pair won the Turnaround of the Year Award at the Turnaround, Restructuring & Insolvency Awards (TRI).

Moores’ history dates back to 1947 when George Moore used £45 he had saved to start a joinery business. Hilco acquired the business from US based Masco which had owned Moores since 1996, but by 2017 it had become non-core to Masco’s operations.

Post acquisition, Hilco provided funding and performed an in depth review of the business, helping management to streamline the cost base, optimise sales channels and improve stock efficiency. This resulted in a 24% increase in revenue in the first year of ownership, a £1.5 million reduction in overheads and a £2.5 million profit in 2019.

Moores was featured in trade journal Manufacturing Today in 2022. The following quote from then CEO Steve Parkin stood out to me because it contrasts with the tone of a Guardian article describing Hilco’s modus operandi which I had previously read.

“Not one Moores employee lost their job during the pandemic”.

Steve goes on to explain how, despite a difficult operating environment during the pandemic, Moores had recently invested £6 million in a new fleet of tractors, factory upgrades and an environmentally friendly boiler to burn waste wood.

He also highlighted Moores’ close relationship with Homebase as a factor in the turnaround. Homebase was purchased by Hilco Capital for £1 from Australian DIY king Bunnings in 2018, but fell into administration last year. Having since been acquired by The Range, the remaining Homebase stores will be converted into The Range stores, although the Homebase brand will be retained online.

With only 15% of Moores’ sales coming from retail channels in 2022, I think the impact from the Homebase administration should be limited. Of the remaining 85% of revenue, 50% was from housebuilders and 35% from the public sector.

Moores offers an end-to-end service to housebuilders, from design through to installation, and Barratt, Persimmon, Redrow, Vistry and Bellway are all clients.

At the end of 2022 after an eight year stint, Steve Parkin was replaced as CEO of Moores by Mike Barrett who began working for the business as a kitchen designer in 2004.

On Hilco’s website it says that Moores is a £68.5 million revenue business compared to £42 million at the time of the management buyout. If the former figure is up to date, then it shows a decline from 2019 when the company delivered sales of £70 million. Most building products companies have struggled since the rise in interest rates in 2022, but (perhaps unlike Moores?) many also participated in the post covid boom preceding this.

The fact that Moores is still operating at 2019 levels seems a little lacklustre, although revenue of £68.5 million still represents a substantial improvement since acquisition. We do not know what Hilco paid for Moores, but probably not much given the group’s focus as an acquirer of distressed assets.

Given the case of Moores is highlighted on Hilco Capital’s website, we might assume it is one of the more successful outcomes achieved by the group.