Stockwatch: follow director buying in a small-cap showing strength?

When black clouds gather – and what could be worse than a crisis akin to 1973-74 as the restoration of shipping through the Strait of Hormuz gets trickier? – it is interesting to check shares showing strength.

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Among yesterday’s risers was small-cap industrial fasteners group Trifast (LSE:TRI), which was up 7% at over 71p, having struck a 59p low on 24 March.

The price had fallen from 87p on 20 February as the Middle East war kicked off, hence effectively this could be little more than a mean-reversion to a sideways trend over the last three years:

Source: interactive investor. Past performance is not a guide to future performance.

Trifast did, however, deliver a superb bull run from 9p in the wake of the 2008 crisis, up to 273p in 2018, but fell to 60p by November 2022, establishing this sideways range.

This is a manufacturer of bolts, nuts, screws and washers that is allegedly “niche”, if no blazing new technology, and prone to the wider business cycle. Major industries are involved such as automotive, electronics and medical.

A current market value of £95 million doesn’t exactly flag a growth business given that Trifast floated 32 years ago. But, at 0.45x expected sales of £214 million in the latest year to 31 March and a latest price/earnings (PE) of 8x – with guidance having been affirmed for numbers due – this looks to me like the kind of smaller well-established company liable to end up in a takeover.

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When I tried to compare operating margins, it appears that Trifast is the last listed industrial fasteners company left.

A big dilemma, however, is cyclicality; why the shares plunged over 30% in response to the outbreak of the Middle East war. Forecasts for 30% earnings per share (EPS) growth in the March 2027 year, for a PEG ratio of 0.25, are moonshine if  industry is facing $150 oil.

Trifast - financial summary
Year end 31 Mar

Source: historic company REFS and company accounts.

Operating margins and returns on capital are modest at around 5%, but despite a somewhat volatile net profit and EPS trend, cash flow per share has traded substantially in excess of EPS. 

Directors have bought strongly up to the end of March   

They have clearly regarded a circa 60p to 80p monotonous trading range as an opportunity. It probably reflects confidence at the mid-stage of a transformation plan to improve margin and profit.

Last 7 January, a non-executive director – who is also a director of Harwood Capital which owns 17.4% as Trifast’s largest shareholder – bought £14,000 worth at 70p then piled in for over £896,000 worth at 59.75p on 26 March. The chief executive bought £99,000 worth at 80p on 16 February, and on 30 March another non-executive director bought £6,900 worth at 63p.

This has followed regular buying by various directors, especially the director of Harwood who accumulated nearly £1.5 million worth from December 2024 to October 2025 at prices from 63p to 82p. Harwood itself raised its stake by 1.6 million shares to 23.7 million on 26 March albeit involved Slater Investments reducing by 3.6 million shares to hold 12.1 million or 8.9%.

Manifestly the directors have conviction about value despite a 4% expected revenue slip in this latest financial year due to “an overall softer demand environment from ongoing tariff disruption, unprecedented challenges in the UK automotive sector, partially offset by growth in smart infrastructure especially in the US”. A mixed narrative then, even before the Middle East war.

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Sales are well diversified internationally but this has meant adverse foreign exchange movements impacting, especially a weaker dollar given that around a quarter of revenue is US-generated.

UK performance has been affected by higher national insurance and minimum wage increases, but if the low-paid are a significant element then it doesn’t exactly flag a high-end business. There have also been cyberattacks, including in Europe, although [these are] a liability generally nowadays. Automotive sales fell in both territories and a concern is chronic ex-growth in a wider shift to electric vehicles, especially from China (if they can get shipped now, of course).

The US has provided growth despite a currency translation headwind, with sales up 8% in the first-half-year driven by smart infrastructure up 15% and medical equipment by 32%. However, such revenue rises were partly driven by tariff-inclusion, hence lower margins.

Will the macro context allow micro-level improvements to raise profit?

When I last wrote about Trifast in July 2024 – suggesting “buy” at 75p – I was attracted by the programme under way to recover operating margins that had been near 10% in 2017 and 2018 at the reported level.

I thought the upside case significantly rested on such margin improvement; yet the last accounts – interims to 30 September 2025 – showed a relatively modest 4.3% at the reported level, or 6.2% if adjusting for intangibles amortisation and costs of the recovery programme. This had improved from 3.3% at the reported operating level to September 2024 or 5.4% adjusted.

Among private firms, Companies House accounts show, for example, AFC Europe on a 6.4% operating margin with £28.2 million revenue in 2024.

Last November’s operational review from Trifast also cited continuing to rebalance into faster-growing markets and sectors; yet its largest division remains UK automotive, which is fundamentally an industry under pressure. Fasteners are also a competitive sector, hence the time being taken to recover margins, and also because manufacturing is capital intensive with significant fixed costs.

This puts the onus on getting timing right; where the directors’ actions say “buy” and the share is currently in jack-rabbit mode as investors ponder the economic fallout from the Middle East.

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Last February, Peel Hunt – Trifast’s broker – maintained a target price of 140p versus a prevailing 80p price, after a third-quarter update affirmed full-year 2026 guidance. However, that implies a 21x PE based on normalised EPS of 6.6p, falling near 16x if 8.6p is achieved to March 2027. I respect the improvement programme, and how, in 2018, EPS around 12p was achieved on sub-£200 million revenue. In the current environment, I still wouldn’t expect the market to push the PE on such a cyclical into the mid-teens.

Meanwhile, a total dividend around 2p per share in respect of this latest year implies a near 3% yield. Yet while net debt appears to be only around £17 million, net finance costs took 45% of operating profit. In terms of financial risk, this looks rather mixed should economies turn down.

Re-balancing from automotive towards smart infrastructure and medical equipment, and exiting low-margin customers means Trifast is in the proverbial “well-positioned when the upturn comes” situation. It’s potentially a bid target before that happens.

Peel Hunt argues in favour of respecting what Trifast has achieved in sluggish market conditions, which is fair, but what if high energy prices reverberate around the economy?

A ‘comprehensive update on performance’ is due later this month

This will also affect sentiment. The trend in directors buying up to restrictions kicking in, implies it should be good.

Around 70p currently, I retain a “buy” stance, albeit I’m more cautious that Trifast’s broker and would target more like 100p – with scope for plenty of variance according to how the global economy pans out.

In a recession scenario should the US/Iran conflict drag on, volatility will continue.

Edmond Jackson is a freelance contributor and not a direct employee of interactive investor.