Diversity helps keep group on track

Carr's Group 11 January 2017 Update

Carr's Group

Diversity helps keep group on track

Interim management statement

General industrials

11 January 2017

Price

145.50p

Market cap

£133m

Net debt (£m) at end December 2016

16.9

Shares in issue

91.4m

Free float

78%

Code

CARR

Primary exchange

LSE

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

(3.3)

0.0

(10.2)

Rel (local)

(7.5)

(2.5)

(6.4)

52-week high/low

167.25p

135.75p

Business description

Carr’s Agriculture division serves farmers in the North of England, South Wales, the Borders and Scotland, the US, Germany and New Zealand. The Engineering division offers remote handling equipment and fabrications to the global nuclear and oil and gas industries.

Next events

Interims

April 2017

Analysts

Anne Margaret Crow

+44 (0)20 3077 5700

Roger Johnston

+44 (0)20 3077 5722

Carr's Group is a research client of Edison Investment Research Limited

Once again, the in-built diversity provided by having two divisions operating in different sectors and internationalisation within those two divisions shows its worth. During the first 18 weeks of FY17 a better than expected performance from the Agricultural division was balanced against a significant contract delay in the Engineering division, with the group as a whole trading in line with management’s expectations for the full year. We leave our estimates and valuation unchanged.

Year
end

Revenue (£m)

PBT*
(£m)

EPS*
(p)

DPS
(p)

P/E
(x)

Yield
(%)

08/15

331.3

14.2

10.6

3.7

13.7

2.5

08/16

314.9

14.0

10.6

3.8**

13.7

2.6

08/17e

332.2

14.6

10.7

3.9

13.6

2.7

08/18e

336.0

15.3

11.2

4.0

13.0

2.7

Note: *PBT and EPS are normalised, excluding amortisation of acquired intangibles, exceptional items and share-based payments. **Excluding 17.54p special dividend.

Stronger than expected Agriculture performance

Confidence appears to be returning to the UK agriculture sector, boosting sales of feed blocks, machinery and agricultural inputs generally, while Carr’s continues to gain share in the compound feed market. Prior year investment in the Country Store retail chain and improving farmer confidence delivered growth exceeding management expectations. In the US, sales of feed blocks were similar to the previous year as ranchers adjusted to lower beef prices.

Single significant contract delay affects Engineering

The remote handling businesses are performing in line with expectations, with Wälischmiller working on significant contracts such as the first self-propelled vehicle mounted Telbot for the vitrification plant in Karlsruhe and MSM busy with the life of plant contract for Sellafield. However, there has been a significant delay with a contract in the UK Manufacturing business that was expected to utilise a significant proportion of FY17 production capacity and is not expected to commence until towards the year end. Management is taking a range of actions to limit the financial impacts of this delay, but notes that divisional performance will be lower than originally expected despite some recent contract wins that will benefit H2. Management is confident that the recovery in UK agriculture will compensate for the FY17 shortfall in Engineering and lack of growth in the US. The divisional order book and pipeline for FY18 and beyond are encouraging.

Valuation: At a moderate discount to market

We retain our estimates and leave our valuation unchanged at 161p/share. Triggers to close the valuation gap include news of management action to reduce the impact of the delayed manufacturing contract and stabilisation in the US beef cattle market.

Exhibit 1: Financial summary

£m

2015

2016

2017e

2018e

2019e

Year-end Aug

PROFIT & LOSS

Revenue

 

331.3

314.9

332.2

336.0

340.0

EBITDA

 

16.0

16.5

17.1

18.2

18.8

Operating Profit (pre amort. of acq intangibles & SBP)

12.6

12.7

13.2

14.1

14.7

Amortisation of acquired intangibles

0.0

0.0

0.0

0.0

0.0

Share-based payments

(0.5)

0.1

(0.5)

(0.5)

(0.5)

Exceptionals

0.0

0.0

0.0

0.0

0.0

Operating Profit

12.1

12.8

12.7

13.6

14.2

Net Interest

(0.7)

(0.8)

(0.6)

(0.8)

(0.8)

Share of post-tax profits in JVs and associates

2.3

2.1

2.0

2.0

2.1

Profit Before Tax (norm)

 

14.2

14.0

14.6

15.3

16.0

Profit Before Tax (FRS 3)

 

13.7

14.1

14.1

14.8

15.5

Tax

(3.0)

(2.9)

(3.3)

(3.5)

(3.7)

Profit After Tax (norm)

11.2

11.1

11.3

11.8

12.3

Profit After Tax (FRS 3)

10.7

11.2

10.8

11.3

11.8

Post tax profit (loss) relating to discontinued operations

3.0

2.8

0.0

0.0

0.0

Minority interest

(1.7)

(1.5)

(1.5)

(1.5)

(1.5)

Net income (norm)

9.5

9.5

9.8

10.2

10.8

Net income (FRS 3)

12.0

12.5

9.3

9.7

10.3

Average Number of Shares Outstanding (m)

89.6

90.1

91.3

91.4

91.4

EPS - normalised (p)

 

10.6

10.6

10.7

11.2

11.8

EPS - normalised fully diluted (p)

 

10.2

10.2

10.3

10.8

11.4

EPS - FRS 3 (p)

 

13.4

13.8

10.1

10.7

11.3

Dividend per share (p)

3.7

3.8

3.9

4.0

4.2

EBITDA Margin (%)

4.8

5.2

5.2

5.4

5.5

Operating Margin (before GW and except.) (%)

3.8

4.0

4.0

4.2

4.3

BALANCE SHEET

Fixed Assets

 

86.5

63.1

73.0

72.4

71.8

Intangible Assets

11.3

11.7

16.0

16.0

16.0

Tangible Assets and Deferred tax assets

75.2

51.4

57.0

56.4

55.7

Current Assets

 

120.4

139.1

118.3

123.2

128.4

Stocks

35.0

33.4

32.4

33.0

34.0

Debtors

65.3

57.2

55.5

56.5

57.5

Cash

20.1

48.4

30.5

33.7

36.9

Current Liabilities

 

(73.8)

(69.0)

(66.3)

(66.1)

(64.1)

Creditors including tax, social security and provisions

(55.0)

(47.3)

(47.7)

(50.5)

(51.5)

Short term borrowings

(18.7)

(21.6)

(18.6)

(15.6)

(12.6)

Long Term Liabilities

 

(34.2)

(23.1)

(23.1)

(23.1)

(23.1)

Long term borrowings

(25.7)

(18.6)

(18.6)

(18.6)

(18.6)

Retirement benefit obligation

0.0

0.0

0.0

0.0

0.0

Other long term liabilities

(8.5)

(4.5)

(4.5)

(4.5)

(4.5)

Net Assets

 

99.0

110.1

101.9

106.4

112.9

Minority interest

(11.9)

(13.4)

(13.4)

(13.4)

(13.4)

Shareholders equity

 

87.1

96.7

88.6

93.0

99.6

CASH FLOW

Operating Cash Flow

 

14.3

11.7

20.3

19.3

17.8

Net Interest

(0.5)

(0.5)

(0.6)

(0.8)

(0.8)

Tax

(3.9)

(1.1)

(3.3)

(3.5)

(3.7)

Investment activities

(4.0)

(2.9)

(7.9)

(3.5)

(3.5)

Acquisitions/disposals

(1.7)

22.7

(4.2)

(1.8)

0.0

Equity financing and other financing activities

(0.3)

1.0

0.0

0.0

0.0

Dividends

(3.1)

(3.3)

(19.2)

(3.6)

(3.7)

Net Cash Flow

0.8

27.5

(14.9)

6.2

6.2

Opening net debt/(cash)

 

24.6

24.4

(8.1)

6.8

0.6

HP finance leases initiated

0.0

0.0

0.0

0.0

0.0

Other

0.6

(5.1)

0.0

0.0

0.0

Closing net debt/(cash)

 

24.4

(8.1)

6.8

0.6

(5.6)

Source: Company accounts, Edison Investment Research

Edison, the investment intelligence firm, is the future of investor interaction with corporates. Our team of over 100 analysts and investment professionals work with leading companies, fund managers and investment banks worldwide to support their capital markets activity. We provide services to more than 400 retained corporate and investor clients from our offices in London, New York, Frankfurt and Sydney. Edison is authorised and regulated by the Financial Conduct Authority. Edison Investment Research (NZ) Limited (Edison NZ) is the New Zealand subsidiary of Edison. Edison NZ is registered on the New Zealand Financial Service Providers Register (FSP number 247505) and is registered to provide wholesale and/or generic financial adviser services only. Edison Investment Research Inc (Edison US) is the US subsidiary of Edison and is regulated by the Securities and Exchange Commission. Edison Investment Research Limited (Edison Aus) [46085869] is the Australian subsidiary of Edison and is not regulated by the Australian Securities and Investment Commission. Edison Germany is a branch entity of Edison Investment Research Limited [4794244]. www.edisongroup.com

DISCLAIMER
Copyright 2017 Edison Investment Research Limited. All rights reserved. This report has been commissioned by Carr's Group and prepared and issued by Edison for publication globally. All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report. Opinions contained in this report represent those of the research department of Edison at the time of publication. The securities described in the Investment Research may not be eligible for sale in all jurisdictions or to certain categories of investors. This research is issued in Australia by Edison Aus and any access to it, is intended only for "wholesale clients" within the meaning of the Australian Corporations Act. The Investment Research is distributed in the United States by Edison US to major US institutional investors only. Edison US is registered as an investment adviser with the Securities and Exchange Commission. Edison US relies upon the "publishers' exclusion" from the definition of investment adviser under Section 202(a)(11) of the Investment Advisers Act of 1940 and corresponding state securities laws. As such, Edison does not offer or provide personalised advice. We publish information about companies in which we believe our readers may be interested and this information reflects our sincere opinions. The information that we provide or that is derived from our website is not intended to be, and should not be construed in any manner whatsoever as, personalised advice. Also, our website and the information provided by us should not be construed by any subscriber or prospective subscriber as Edison’s solicitation to effect, or attempt to effect, any transaction in a security. The research in this document is intended for New Zealand resident professional financial advisers or brokers (for use in their roles as financial advisers or brokers) and habitual investors who are “wholesale clients” for the purpose of the Financial Advisers Act 2008 (FAA) (as described in sections 5(c) (1)(a), (b) and (c) of the FAA). This is not a solicitation or inducement to buy, sell, subscribe, or underwrite any securities mentioned or in the topic of this document. This document is provided for information purposes only and should not be construed as an offer or solicitation for investment in any securities mentioned or in the topic of this document. A marketing communication under FCA Rules, this document has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research.
Edison has a restrictive policy relating to personal dealing. Edison Group does not conduct any investment business and, accordingly, does not itself hold any positions in the securities mentioned in this report. However, the respective directors, officers, employees and contractors of Edison may have a position in any or related securities mentioned in this report. Edison or its affiliates may perform services or solicit business from any of the companies mentioned in this report. The value of securities mentioned in this report can fall as well as rise and are subject to large and sudden swings. In addition it may be difficult or not possible to buy, sell or obtain accurate information about the value of securities mentioned in this report. Past performance is not necessarily a guide to future performance. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations. For the purpose of the FAA, the content of this report is of a general nature, is intended as a source of general information only and is not intended to constitute a recommendation or opinion in relation to acquiring or disposing (including refraining from acquiring or disposing) of securities. The distribution of this document is not a “personalised service” and, to the extent that it contains any financial advice, is intended only as a “class service” provided by Edison within the meaning of the FAA (ie without taking into account the particular financial situation or goals of any person). As such, it should not be relied upon in making an investment decision. To the maximum extent permitted by law, Edison, its affiliates and contractors, and their respective directors, officers and employees will not be liable for any loss or damage arising as a result of reliance being placed on any of the information contained in this report and do not guarantee the returns on investments in the products discussed in this publication. FTSE International Limited (“FTSE”) © FTSE 2017. “FTSE®” is a trade mark of the London Stock Exchange Group companies and is used by FTSE International Limited under license. All rights in the FTSE indices and/or FTSE ratings vest in FTSE and/or its licensors. Neither FTSE nor its licensors accept any liability for any errors or omissions in the FTSE indices and/or FTSE ratings or underlying data. No further distribution of FTSE Data is permitted without FTSE’s express written consent.

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

245 Park Avenue, 39th Floor

10167, New York

US

Sydney +61 (0)2 9258 1161

Level 25, Aurora Place

88 Phillip St, Sydney

NSW 2000, Australia

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

245 Park Avenue, 39th Floor

10167, New York

US

Sydney +61 (0)2 9258 1161

Level 25, Aurora Place

88 Phillip St, Sydney

NSW 2000, Australia

Edison, the investment intelligence firm, is the future of investor interaction with corporates. Our team of over 100 analysts and investment professionals work with leading companies, fund managers and investment banks worldwide to support their capital markets activity. We provide services to more than 400 retained corporate and investor clients from our offices in London, New York, Frankfurt and Sydney. Edison is authorised and regulated by the Financial Conduct Authority. Edison Investment Research (NZ) Limited (Edison NZ) is the New Zealand subsidiary of Edison. Edison NZ is registered on the New Zealand Financial Service Providers Register (FSP number 247505) and is registered to provide wholesale and/or generic financial adviser services only. Edison Investment Research Inc (Edison US) is the US subsidiary of Edison and is regulated by the Securities and Exchange Commission. Edison Investment Research Limited (Edison Aus) [46085869] is the Australian subsidiary of Edison and is not regulated by the Australian Securities and Investment Commission. Edison Germany is a branch entity of Edison Investment Research Limited [4794244]. www.edisongroup.com

DISCLAIMER
Copyright 2017 Edison Investment Research Limited. All rights reserved. This report has been commissioned by Carr's Group and prepared and issued by Edison for publication globally. All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report. Opinions contained in this report represent those of the research department of Edison at the time of publication. The securities described in the Investment Research may not be eligible for sale in all jurisdictions or to certain categories of investors. This research is issued in Australia by Edison Aus and any access to it, is intended only for "wholesale clients" within the meaning of the Australian Corporations Act. The Investment Research is distributed in the United States by Edison US to major US institutional investors only. Edison US is registered as an investment adviser with the Securities and Exchange Commission. Edison US relies upon the "publishers' exclusion" from the definition of investment adviser under Section 202(a)(11) of the Investment Advisers Act of 1940 and corresponding state securities laws. As such, Edison does not offer or provide personalised advice. We publish information about companies in which we believe our readers may be interested and this information reflects our sincere opinions. The information that we provide or that is derived from our website is not intended to be, and should not be construed in any manner whatsoever as, personalised advice. Also, our website and the information provided by us should not be construed by any subscriber or prospective subscriber as Edison’s solicitation to effect, or attempt to effect, any transaction in a security. The research in this document is intended for New Zealand resident professional financial advisers or brokers (for use in their roles as financial advisers or brokers) and habitual investors who are “wholesale clients” for the purpose of the Financial Advisers Act 2008 (FAA) (as described in sections 5(c) (1)(a), (b) and (c) of the FAA). This is not a solicitation or inducement to buy, sell, subscribe, or underwrite any securities mentioned or in the topic of this document. This document is provided for information purposes only and should not be construed as an offer or solicitation for investment in any securities mentioned or in the topic of this document. A marketing communication under FCA Rules, this document has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research.
Edison has a restrictive policy relating to personal dealing. Edison Group does not conduct any investment business and, accordingly, does not itself hold any positions in the securities mentioned in this report. However, the respective directors, officers, employees and contractors of Edison may have a position in any or related securities mentioned in this report. Edison or its affiliates may perform services or solicit business from any of the companies mentioned in this report. The value of securities mentioned in this report can fall as well as rise and are subject to large and sudden swings. In addition it may be difficult or not possible to buy, sell or obtain accurate information about the value of securities mentioned in this report. Past performance is not necessarily a guide to future performance. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations. For the purpose of the FAA, the content of this report is of a general nature, is intended as a source of general information only and is not intended to constitute a recommendation or opinion in relation to acquiring or disposing (including refraining from acquiring or disposing) of securities. The distribution of this document is not a “personalised service” and, to the extent that it contains any financial advice, is intended only as a “class service” provided by Edison within the meaning of the FAA (ie without taking into account the particular financial situation or goals of any person). As such, it should not be relied upon in making an investment decision. To the maximum extent permitted by law, Edison, its affiliates and contractors, and their respective directors, officers and employees will not be liable for any loss or damage arising as a result of reliance being placed on any of the information contained in this report and do not guarantee the returns on investments in the products discussed in this publication. FTSE International Limited (“FTSE”) © FTSE 2017. “FTSE®” is a trade mark of the London Stock Exchange Group companies and is used by FTSE International Limited under license. All rights in the FTSE indices and/or FTSE ratings vest in FTSE and/or its licensors. Neither FTSE nor its licensors accept any liability for any errors or omissions in the FTSE indices and/or FTSE ratings or underlying data. No further distribution of FTSE Data is permitted without FTSE’s express written consent.

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

245 Park Avenue, 39th Floor

10167, New York

US

Sydney +61 (0)2 9258 1161

Level 25, Aurora Place

88 Phillip St, Sydney

NSW 2000, Australia

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

245 Park Avenue, 39th Floor

10167, New York

US

Sydney +61 (0)2 9258 1161

Level 25, Aurora Place

88 Phillip St, Sydney

NSW 2000, Australia

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