Avon Rubber designs, develops and manufactures products in the protection (70% FY18 sales) and dairy (30%) sectors. Its major contracts are with national security organisations such as the US DoD. Over 70% of 2018 sales were from the US.
Guidance for FY19 is maintained after a slow H119 as recent major multi-year mask orders commence delivery in H219, accelerating Avon Protection’s growth and more than compensating for the weaker than expected milkrite | InterPuls performance. However, even here a rebound in H219 will further skew the half-yearly split. Despite the divisional mix shift, our overall estimates remain unchanged. While H119 was tough, the outlook is promising as the company continues to grow the core, focus on selective new product development and search for M&A opportunities. In our opinion, the full year progression warrants the premium rating Avon enjoys, but H2 execution and momentum into FY20 is key.
Avon’s long-standing, multi-level relationship with the US DoD is important to the group and the end market backdrop is supportive. The active dialogue for the M50 replenishment phase should extend the programme for at least another 15 years, plus a focus on higher price sophisticated mask systems provides a further opportunity. Meanwhile, growth has been encouraging in Farm Services, building greater visibility into the business. We maintain our view that Avon has the market position, product portfolio and strategic ambition to further accelerate its growth through organic and inorganic means.