Expansion of engineering activity in the US

Carr's Group 8 August 2017 Update
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Carr's Group

Expansion of engineering activity in the US

Acquisition

Food & beverages

8 August 2017

Price

146.75p

Market cap

£134m

£/US$:1/1.30

Net debt (£m) at 4 March 2017

11.5

Shares in issue

91.4m

Free float

80.5

Code

CARR

Primary exchange

LSE

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

9.9

13.8

3.2

Rel (local)

7.2

10.5

(7.7)

52-week high/low

167.2p

124.0p

Business description

Carr’s Agriculture division serves farmers in the North of England, South Wales, the Boarders 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

Prelims

13 November 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

Carr’s Group has acquired US-based NuVision Engineering for a total cash consideration of up to US$20m (£15.4m). The transaction is immediately earnings enhancing. Importantly, it gives German-based Wälischmiller, which is part of the Carr’s Group Engineering division, greatly enhanced access to the US nuclear market. We raise our FY18 and FY19 estimates and revise our indicative valuation from 158p/share to 163p/share.

Year end

Revenue (£m)

PBT*
(£m)

EPS*
(p)

DPS
(p)

P/E
(x)

Yield
(%)

08/15

331.3

14.2

10.6

3.7

13.8

2.5

08/16

314.9

14.0

10.6

3.8**

13.8

2.6

08/17e

332.2

11.8

8.9

3.9

16.5

2.7

08/18e

342.8

15.3

11.6

4.0

12.7

2.7

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

Acquisition opens up US market

NuVision provides products and field services to clients in the commercial nuclear and fossil power plant industries, including a process for mitigating stress corrosion cracking in nuclear plant pipe welds, engineering design and analysis and radiological decontamination equipment and services. It also supports nuclear decommissioning programmes in the US, UK and Canada through the provision of specialist equipment including its proprietary remote handling arms. Following the transaction, NuVision will start to sell Wälischmiller’s complementary range of remote handling equipment to its established base, thus creating a route to market that overcomes the resistance to purchasing from non-US suppliers that Wälischmiller has experienced in the past. In addition, the acquisition strengthens the services that the group’s Engineering division is able to provide to its customers in the nuclear industry. For example, NuVision is a key supplier on a major nuclear contract that will be delivered by the Manufacturing businesses during FY18.

Acquisition immediately earnings enhancing

For the year ended March 2017, NuVision generated $8.8m revenues and $1.1m profit before tax (adjusted for non-recurring items and amortisation of intangibles). The maximum total consideration payable is $20m, with an initial consideration of $11.5m payable in cash, funded through £6m new term loan facilities and the group’s existing credit facilities. The remaining $8.5m, also payable in cash, is contingent on NuVision’s performance over the 32 months ending March 2020. The upwards revisions to our estimates assume NuVision’s revenues and PBT remain at historic levels and exclude any potential from cross-selling.

Valuation: Modest uplift from acquisition

Our valuation methodology is based on a DCF analysis, as this captures the medium- and long-term prospects for the group. We continue to use a conservative 10.0% WACC and a 1.0% terminal growth rate, which gives a fair value of 163p/share (previously 158p/share).

Revisions to estimates

The changes to our estimates make the following assumptions:

No impact on FY17 revenues or profits as the acquisition takes place very close to the year end

NuVision’s revenues and profits remain at the levels reported for the year ending March 2017, although the extensive contract and opportunity pipeline indicates potential for growth

Although management expects to see material benefit from cross-selling from FY19 onwards, we currently exclude this from our estimates. We will revisit these assumptions when the FY17 results are announced in November.

Exhibit 1: Changes to estimates

Year end August

FY16

FY17e

FY18e

FY19e

(£m)

Actual

Old

New

Change

Old

New

Change

Old

New

Change

Revenues

314.9

332.2

332.2

0.0%

336.0

342.8

2.0%

340.0

346.8

2.0%

Adjusted PBT

14.0

11.8

11.8

0.0%

14.7

15.3

4.1%

16.0

16.6

3.7%

EPS (p)

10.6

8.9

8.9

0.0%

11.1

11.6

4.5%

11.8

12.3

4.1%

Net (cash)/debt

(8.1)

8.6

17.4

103.3%

2.7

10.2

283.9%

(3.4)

2.9

N/A

Source: Carr’s Group accounts (historics), Edison Investment Research

Exhibit 2: Financial summary

£m

2015

2016

2017e

2018e

2019e

Year-end Aug

PROFIT & LOSS

Revenue

 

 

331.3

314.9

332.2

342.8

346.8

EBITDA

 

 

16.0

16.5

14.1

19.0

20.2

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

 

12.6

12.7

10.2

14.1

15.3

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

9.7

13.6

14.8

Net Interest

(0.7)

(0.8)

(0.6)

(1.0)

(1.0)

Share of post-tax profits in JVs and associates

2.3

2.1

2.2

2.2

2.3

Profit Before Tax (norm)

 

 

14.2

14.0

11.8

15.3

16.6

Profit Before Tax (FRS 3)

 

 

13.7

14.1

11.3

14.8

16.1

Tax

(3.0)

(2.9)

(2.1)

(3.1)

(3.9)

Profit After Tax (norm)

11.2

11.1

9.7

12.2

12.7

Profit After Tax (FRS 3)

10.7

11.2

9.2

11.7

12.2

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

8.2

10.6

11.2

Net income (FRS 3)

12.0

12.5

7.7

10.1

10.7

Average Number of Shares Outstanding (m)

89.6

90.1

91.4

91.4

91.4

EPS - normalised (p)

 

 

10.6

10.6

8.9

11.6

12.3

EPS - normalised fully diluted (p)

 

 

10.2

10.2

8.6

11.2

11.9

EPS - FRS 3 (p)

 

 

13.4

13.8

8.4

11.1

11.7

Dividend per share (p)

3.7

3.8**

3.9

4.0

4.2

EBITDA Margin (%)

4.8

5.2

4.2

5.5

5.8

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

3.8

4.0

3.1

4.1

4.4

BALANCE SHEET

Fixed Assets

 

 

86.5

63.1

81.9

80.5

78.9

Intangible Assets

11.3

11.7

16.0

15.8

15.6

Tangible Assets and Deferred tax assets

75.2

51.4

65.9

64.7

63.4

Current Assets

 

 

120.4

139.1

108.5

114.3

120.6

Stocks

35.0

33.4

33.1

33.8

34.8

Debtors

65.3

57.2

55.5

56.5

57.5

Cash

20.1

48.4

19.9

24.0

28.3

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

100.9

105.5

112.3

Minority interest

(11.9)

(13.4)

(13.4)

(13.4)

(13.4)

Shareholders equity

 

 

87.1

96.7

87.5

92.2

98.9

CASH FLOW

Operating Cash Flow

 

 

14.3

11.7

17.3

20.1

19.2

Net Interest

(0.5)

(0.5)

(0.6)

(1.0)

(1.0)

Tax

(3.9)

(1.1)

(2.1)

(3.1)

(3.9)

Investment activities

(4.0)

(2.9)

(7.9)

(3.5)

(3.5)

Acquisitions/disposals

(1.7)

22.7

(13.1)

(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

(25.6)

7.2

7.3

Opening net debt/(cash)

 

 

24.6

24.4

(8.1)

17.4

10.2

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)

17.4

10.2

2.9

Source: Carr’s Group accounts, Edison Investment Research. Note: **Excluding 17.54p special dividend.

Edison is an investment research and advisory company, with offices in North America, Europe, the Middle East and AsiaPac. The heart of Edison is our world-renowned equity research platform and deep multi-sector expertise. At Edison Investment Research, our research is widely read by international investors, advisers and stakeholders. Edison Advisors leverages our core research platform to provide differentiated services including investor relations and strategic consulting. 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

295 Madison Avenue, 18th Floor

10017, New York

US

Sydney +61 (0)2 8249 8342

Level 12, Office 1205

95 Pitt Street, 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

295 Madison Avenue, 18th Floor

10017, New York

US

Sydney +61 (0)2 8249 8342

Level 12, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

Edison is an investment research and advisory company, with offices in North America, Europe, the Middle East and AsiaPac. The heart of Edison is our world-renowned equity research platform and deep multi-sector expertise. At Edison Investment Research, our research is widely read by international investors, advisers and stakeholders. Edison Advisors leverages our core research platform to provide differentiated services including investor relations and strategic consulting. 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

295 Madison Avenue, 18th Floor

10017, New York

US

Sydney +61 (0)2 8249 8342

Level 12, Office 1205

95 Pitt Street, 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

295 Madison Avenue, 18th Floor

10017, New York

US

Sydney +61 (0)2 8249 8342

Level 12, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

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