This may be Questor’s most speculative bet yet: a tiny, loss-making firm with no divi

There are also debts at Pressure Technologies but if orders recover it could look cheap, says Russ Mould

A MICRO-CAP stock whose dividend has been cut to zero, whose profits have given way to losses and whose long-standing and highly respected founder and chief executive has just retired will not appeal to everyone – and rightly so.

Turnaround stories such as this are fraught with risk, especially as they can take a lot longer to bear fruit than originally expected (assuming they turn around at all). However, the potential rewards at Pressure Technologies may justify the risks for patient, risk-tolerant investors who can speculate to accumulate.

Established in 1997 and floated in 2007, Pressure Technologies sells into the oil and gas, industrial gases, defence and alternative energy markets through three divisions: cylinders, alternative energy and precision machined

components. A fourth arm, Hydratron, acquired in 2010, has just been sold to reduce exposure to the oil and gas industries, and help to reduce debt.

The cylinders arm specialises in high-pressure gas containment, from huge units that keep oil rigs afloat to oxygen containers on jet fighters.

Alternative energy supplies biogas upgrading equipment, while the components arm makes parts for valves used in oil exploration. In all cases, Pressure Technologies’ expertise in high-grade stainless steels and alloys, and in precision production, makes it one of the very few firms to which certain buyers can turn.

The problems lie largely with that oil and gas exposure. Acquisitions in 2014 increased the company’s presence here, just as the oil price peaked. Sales peaked at £54m, operating margins at 14.5pc and earnings per share at just short of 28p. June’s interims offered some signs that oil and gas orders were starting to increase again and the defence pipeline was healthy, but order delays at alternative energy were a further handicap and that unit will now make a loss this year. New divisional heads have been brought in and all Pressure Technologies needs for profits to surge again is more orders.

The balance sheet no longer has net cash – a legacy of the acquisitions and two lean years for profits – but the £9.3m in net debt looks manageable, especially now the company’s banks have extended the repayment date on a £15m loan facility. That means

investors can afford to be patient. In all honesty, they may have to be. But it will not require a return to the glory days of 2014 for the shares to look cheap.

Pressure Technologies’ average operating margin since 2007 has been 10pc. Apply that to sales of £35m, knock off the interest and tax, and the company could make 14.7p in earnings per share – for a price-to-earnings ratio of barely seven.

A very speculative selection but one that could reward patience.

Questor says: speculative buy Ticker: PRES

Share price at close: 109p