Low & Bonar produces specialist performance materials for a variety of end markets by combining polymers with specialty additives and pigments. From FY19 Building & Industrial and Interiors & Transportation will be combined as the Colbond division.
Low & Bonar announced a £54m Placing and Open Offer (c £50m net) alongside its FY18 results. The results themselves were broadly in line with our estimates – albeit with a lower final dividend – as was year-end net debt at £128.5m. A return to Civil Engineering profitability is a welcome development ahead of the expected disposal of that division and Interiors & Transport also performed well in H2. Ongoing production issues at Coated Technical Textiles remained a drag on financial performance although there now appears to be a clear strategy for resolving problems here. We trimmed our divisional margin estimates for FY19 and FY20 giving rise to 7–8% EBITDA reductions and adjusted for lower interest costs and an increased number of shares after the equity raise as well as a re-set dividend cover policy of approximately 2.5x. The new equity funding goes a long way towards resolving balance sheet net debt constraints and allows the relatively new management team to execute its updated strategic plan.
The new management team has restated key strategic medium-term financial targets of revenue growth 1-2% above regional weighted GDP, 10% operating margins, a 12%+ return on capital employed and an average dividend payout equal to 40% of PAT.