Good start to FY19

Carr's Group 8 January 2019 Update
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Carr's Group

Good start to FY19

AGM update

General industrials

 

8 January 2019

Price

160p

Market cap

£147m

Net debt (£m) at 1 December 2018

23.9

Shares in issue

91.4m

Free float

84.5%

Code

CARR

Primary exchange

LSE

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

3.7

4.1

32.0

Rel (local)

3.2

12.4

50.4

52-week high/low

168p

124p

Business description

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

Interim results

15 April 2019

Analyst

Anne Margaret Crow

+44 (0)20 3077 5700

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

Carr’s trading update for the first 18 weeks of FY19 indicates that both divisions are performing well. As the group is trading in line with management’s expectations for the full year, we leave our estimates and indicative valuation of 182p/share unchanged.

Year end

Revenue (£m)

PBT* (£m)

EPS* (p)

DPS (p)

P/E (x)

Yield (%)

08/17

346.2

11.9

9.4

4.0

17.0

2.5

08/18

403.2

17.7

15.2

4.5

10.5

2.8

08/19e

418.8

18.1

15.3

4.7

10.5

2.9

08/20e

425.5

18.9

16.0

4.9

10.0

3.1

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

Continued improvement in US feed block volumes

US feed block volumes continued to rise as the cattle price recovery has been maintained and penetration of the eastern states of the US has increased following the commissioning of the low moisture feed block plant in Tennessee in January 2018. UK farming sentiment remains positive. Although demand for fuel and animal health products for cattle being kept indoors was lower because of the mild autumn, trading overall was in line with management expectations. The integration of Animax, acquired in September 2018, with its complementary animal health product portfolio is progressing well.

Strong Engineering order book

The UK Manufacturing order book, which includes long-term contracts from the nuclear industry, is strong. The recent $8.5m US contract for remote handling equipment from the German business demonstrates the benefits of working with NuVision (acquired August 2017) and helps top up Wälischmiller’s order book following completion of the substantial Chinese orders in FY18. NuVision’s own order book benefitted from two significant Mechanical Stress Improvement Process contracts, won during the summer, which extend to FY21. Funding from the US Department of Energy to develop a small-scale working prototype of NuVision’s passive cooling technology, which is intended to prevent a repeat of the Fukushima tragedy, potentially opens a new product area longer-term.

Valuation: Unchanged at 182p/share

Our DCF analysis gives an indicative value of 182p/share (unchanged). At the current share price, Carr’s is trading below its peers with regards to mean EV/EBITDA (6.8x vs 8.0x) and mean P/E (10.5x vs 12.1x) for the year ending August 2019. Clarity on trading arrangements post-Brexit and news of Engineering orders should help close the valuation gap, in our view.

Exhibit 1: Financial summary

£m

2017

2018

2019e

2020e

2021e

Year-end Aug

Restated

PROFIT & LOSS

Revenue

 

 

346.2

403.2

418.8

425.5

430.5

EBITDA

 

 

13.9

19.9

21.0

21.5

22.0

Operating Profit (before amort. and except.)

 

 

9.8

15.4

16.4

16.8

17.3

Amortisation of acquired intangibles

(0.1)

(0.3)

(0.2)

(0.2)

(0.2)

Share-based payments

(0.5)

(1.1)

(1.1)

(1.1)

(1.1)

Exceptionals

(1.3)

(0.8)

(0.2)

0.0

0.0

Operating Profit

7.9

13.2

14.9

15.5

16.0

Net Interest

(0.7)

(0.9)

(1.3)

(1.0)

(1.0)

Share of post-tax profits in JVs and associates

2.8

3.2

3.0

3.0

3.0

Profit Before Tax (norm)

 

 

11.9

17.7

18.1

18.9

19.3

Profit Before Tax (FRS 3)

 

 

10.0

15.5

16.6

17.6

18.0

Tax

(1.7)

(1.9)

(2.6)

(2.8)

(2.9)

Profit After Tax (norm)

9.9

15.6

15.5

16.1

16.5

Profit After Tax (FRS 3)

8.3

13.6

14.0

14.8

15.2

Minority interest

(1.3)

(1.8)

(1.5)

(1.5)

(1.5)

Net income (norm)

8.6

13.9

14.0

14.6

15.0

Net income (FRS 3)

7.0

11.9

12.5

13.3

13.7

Average Number of Shares Outstanding (m)

91.4

91.4

91.4

91.4

91.4

EPS - normalised (p)

 

 

9.4

15.2

15.3

16.0

16.4

EPS

 

 

9.4

14.8

15.0

15.6

16.0

EPS - FRS 3 (p)

 

 

7.7

13.0

13.6

14.5

15.0

Dividend per share (p)

4.0

4.5

4.7

4.9

5.1

EBITDA Margin (%)

4.0

4.9

5.0

5.0

5.1

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

2.8

3.8

3.9

4.0

4.0

BALANCE SHEET

Fixed Assets

 

 

87.6

96.5

101.9

101.8

101.7

Intangible Assets

26.6

26.5

27.0

27.1

27.3

Tangible Assets, Deferred tax assets and Pension surplus

61.1

70.0

74.9

74.7

74.4

Current Assets

 

 

120.9

134.7

133.9

138.2

142.6

Stocks

37.0

42.4

47.0

51.3

51.9

Debtors

60.0

67.7

71.3

73.6

74.5

Cash

23.9

24.6

15.5

13.3

16.2

Current Liabilities

 

 

(73.9)

(99.5)

(83.7)

(81.8)

(79.6)

Creditors including tax, social security and provisions

(56.9)

(64.5)

(66.7)

(67.8)

(68.6)

Short term borrowings

(17.1)

(35.0)

(17.0)

(14.0)

(11.0)

Long Term Liabilities

 

 

(28.7)

(10.8)

(25.8)

(25.8)

(25.8)

Long term borrowings

(21.0)

(5.0)

(20.0)

(20.0)

(20.0)

Retirement benefit obligation

0.0

0.0

0.0

0.0

0.0

Other long term liabilities

(7.8)

(5.8)

(5.8)

(5.8)

(5.8)

Net Assets

 

 

105.9

121.0

126.3

132.5

138.9

Minority interest

(14.4)

(15.7)

(16.7)

(17.7)

(18.7)

Shareholders equity

 

 

91.5

105.3

109.6

114.8

120.2

CASH FLOW

Operating Cash Flow

 

 

15.1

15.0

14.9

16.0

21.4

Net Interest

(0.7)

(1.0)

(1.3)

(1.0)

(1.0)

Tax

(1.2)

(2.5)

(2.6)

(2.8)

(2.9)

Investment activities

(1.1)

(2.8)

(5.3)

(4.8)

(4.8)

Acquisitions/disposals

(13.2)

(4.2)

(8.8)

(2.3)

(2.3)

Equity financing and other financing activities

0.1

(0.1)

0.0

0.0

0.0

Dividends to shareholders

(19.5)

(3.8)

(4.1)

(4.3)

(4.5)

Net Cash Flow

(20.4)

0.5

(7.3)

0.8

5.9

Opening net debt/(cash)

 

 

(8.1)

14.1

15.4

21.5

20.7

HP finance leases initiated

0.0

0.0

0.0

0.0

0.0

Other

1.9

1.7

(1.2)

0.0

0.0

Closing net debt/(cash)

 

 

14.1

15.4

21.5

20.7

14.8

Source: Company data, Edison Investment Research

General disclaimer and copyright

This report has been commissioned by Carr's Group and prepared and issued by Edison, in consideration of a fee payable by Carr's Group. Edison Investment Research standard fees are £49,500 pa for the production and broad dissemination of a detailed note (Outlook) following by regular (typically quarterly) update notes. Fees are paid upfront in cash without recourse. Edison may seek additional fees for the provision of roadshows and related IR services for the client but does not get remunerated for any investment banking services. We never take payment in stock, options or warrants for any of our services.

Accuracy of content: 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 and have not sought for this information to be independently verified. Opinions contained in this report represent those of the Edison analyst at the time of publication. 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.

Exclusion of Liability: To the fullest extent allowed by law, Edison shall not be liable for any direct, indirect or consequential losses, loss of profits, damages, costs or expenses incurred or suffered by you arising out or in connection with the access to, use of or reliance on any information contained on this note.

No personalised advice: The information that we provide should not be construed in any manner whatsoever as, personalised advice. Also, 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 securities described in the report may not be eligible for sale in all jurisdictions or to certain categories of investors.

Investment in securities mentioned: Edison has a restrictive policy relating to personal dealing and conflicts of interest. 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, subject to Edison's policies on personal dealing and conflicts of interest.

Copyright: Copyright 2019 Edison Investment Research Limited (Edison). All rights reserved FTSE International Limited (“FTSE”) © FTSE 2019. “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.

Australia

Edison Investment Research Pty Ltd (Edison AU) is the Australian subsidiary of Edison. Edison AU is a Corporate Authorised Representative (1252501) of Myonlineadvisers Pty Ltd who holds an Australian Financial Services Licence (Number: 427484). This research is issued in Australia by Edison AU and any access to it, is intended only for "wholesale clients" within the meaning of the Corporations Act 2001 of Australia. Any advice given by Edison AU is general advice only and does not take into account your personal circumstances, needs or objectives. You should, before acting on this advice, consider the appropriateness of the advice, having regard to your objectives, financial situation and needs. If our advice relates to the acquisition, or possible acquisition, of a particular financial product you should read any relevant Product Disclosure Statement or like instrument.

New Zealand

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. 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 (i.e. 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.

United Kingdom

Neither this document and associated email (together, the "Communication") constitutes or form part of any offer for sale or subscription of, or solicitation of any offer to buy or subscribe for, any securities, nor shall it or any part of it form the basis of, or be relied on in connection with, any contract or commitment whatsoever. Any decision to purchase shares in the Company in the proposed placing should be made solely on the basis of the information to be contained in the admission document to be published in connection therewith.

This Communication is being distributed in the United Kingdom and is directed only at (i) persons having professional experience in matters relating to investments, i.e. investment professionals within the meaning of Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, as amended (the "FPO") (ii) high net-worth companies, unincorporated associations or other bodies within the meaning of Article 49 of the FPO and (iii) persons to whom it is otherwise lawful to distribute it. The investment or investment activity to which this document relates is available only to such persons. It is not intended that this document be distributed or passed on, directly or indirectly, to any other class of persons and in any event and under no circumstances should persons of any other description rely on or act upon the contents of this document (nor will such persons be able to purchase shares in the placing).

This Communication is being supplied to you solely for your information and may not be reproduced by, further distributed to or published in whole or in part by, any other person.

United States

The Investment Research is a publication distributed in the United States by Edison Investment Research, Inc. Edison Investment Research, Inc. is registered as an investment adviser with the Securities and Exchange Commission. Edison 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. This report is a bona fide publication of general and regular circulation offering impersonal investment-related advice, not tailored to a specific investment portfolio or the needs of current and/or prospective subscribers. As such, Edison does not offer or provide personal advice and the research provided is for informational purposes only. No mention of a particular security in this report constitutes a recommendation to buy, sell or hold that or any security, or that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person.

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 4, 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 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

General disclaimer and copyright

This report has been commissioned by Carr's Group and prepared and issued by Edison, in consideration of a fee payable by Carr's Group. Edison Investment Research standard fees are £49,500 pa for the production and broad dissemination of a detailed note (Outlook) following by regular (typically quarterly) update notes. Fees are paid upfront in cash without recourse. Edison may seek additional fees for the provision of roadshows and related IR services for the client but does not get remunerated for any investment banking services. We never take payment in stock, options or warrants for any of our services.

Accuracy of content: 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 and have not sought for this information to be independently verified. Opinions contained in this report represent those of the Edison analyst at the time of publication. 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.

Exclusion of Liability: To the fullest extent allowed by law, Edison shall not be liable for any direct, indirect or consequential losses, loss of profits, damages, costs or expenses incurred or suffered by you arising out or in connection with the access to, use of or reliance on any information contained on this note.

No personalised advice: The information that we provide should not be construed in any manner whatsoever as, personalised advice. Also, 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 securities described in the report may not be eligible for sale in all jurisdictions or to certain categories of investors.

Investment in securities mentioned: Edison has a restrictive policy relating to personal dealing and conflicts of interest. 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, subject to Edison's policies on personal dealing and conflicts of interest.

Copyright: Copyright 2019 Edison Investment Research Limited (Edison). All rights reserved FTSE International Limited (“FTSE”) © FTSE 2019. “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.

Australia

Edison Investment Research Pty Ltd (Edison AU) is the Australian subsidiary of Edison. Edison AU is a Corporate Authorised Representative (1252501) of Myonlineadvisers Pty Ltd who holds an Australian Financial Services Licence (Number: 427484). This research is issued in Australia by Edison AU and any access to it, is intended only for "wholesale clients" within the meaning of the Corporations Act 2001 of Australia. Any advice given by Edison AU is general advice only and does not take into account your personal circumstances, needs or objectives. You should, before acting on this advice, consider the appropriateness of the advice, having regard to your objectives, financial situation and needs. If our advice relates to the acquisition, or possible acquisition, of a particular financial product you should read any relevant Product Disclosure Statement or like instrument.

New Zealand

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. 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 (i.e. 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.

United Kingdom

Neither this document and associated email (together, the "Communication") constitutes or form part of any offer for sale or subscription of, or solicitation of any offer to buy or subscribe for, any securities, nor shall it or any part of it form the basis of, or be relied on in connection with, any contract or commitment whatsoever. Any decision to purchase shares in the Company in the proposed placing should be made solely on the basis of the information to be contained in the admission document to be published in connection therewith.

This Communication is being distributed in the United Kingdom and is directed only at (i) persons having professional experience in matters relating to investments, i.e. investment professionals within the meaning of Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, as amended (the "FPO") (ii) high net-worth companies, unincorporated associations or other bodies within the meaning of Article 49 of the FPO and (iii) persons to whom it is otherwise lawful to distribute it. The investment or investment activity to which this document relates is available only to such persons. It is not intended that this document be distributed or passed on, directly or indirectly, to any other class of persons and in any event and under no circumstances should persons of any other description rely on or act upon the contents of this document (nor will such persons be able to purchase shares in the placing).

This Communication is being supplied to you solely for your information and may not be reproduced by, further distributed to or published in whole or in part by, any other person.

United States

The Investment Research is a publication distributed in the United States by Edison Investment Research, Inc. Edison Investment Research, Inc. is registered as an investment adviser with the Securities and Exchange Commission. Edison 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. This report is a bona fide publication of general and regular circulation offering impersonal investment-related advice, not tailored to a specific investment portfolio or the needs of current and/or prospective subscribers. As such, Edison does not offer or provide personal advice and the research provided is for informational purposes only. No mention of a particular security in this report constitutes a recommendation to buy, sell or hold that or any security, or that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person.

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 4, 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 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

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