Recovery on track

Carr's Group 9 January 2018 Update
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Carr's Group

Recovery on track

AGM update

General industrials

9 January 2018

Price

124.0p

Market cap

£113m

Net debt (£m) at 2 December 2017

19.0

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

(4.4)

(14.5)

(18.4)

Rel (local)

(8.2)

(16.6)

(24.6)

52-week high/low

156.0p

120.0p

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

16 April 2018

Analyst

Anne Margaret Crow

+44 (0)20 3077 5700

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

Performance during the first 18 weeks of FY18 indicates that the recovery in both divisions that was predicted by Carr’s management is well underway. As the group is trading in line with management’s expectations for the full year, we leave our estimates and valuation unchanged except for an upward revision to revenues to reflect higher commodity prices.

Year end

Revenue (£m)

PBT*
(£m)

EPS*
(p)

DPS
(p)

P/E
(x)

Yield
(%)

08/16

314.9

14.2

10.8

3.8**

11.5

3.1

08/17

346.2

11.9

9.4

4.0

13.2

3.2

08/18e

370.1

15.9

12.5

4.2

9.9

3.4

08//19e

377.5

16.9

12.9

4.4

9.6

3.5

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

Continued improvement in US feed block volumes

Importantly, US feed block volumes continued to recover as cattle prices for producers improved. Going forward, this favourable trend will be augmented by the availability of low moisture feed blocks from the newly commissioned plant in Tennessee, which opens up the market in the eastern states of the US. UK farming sentiment remains positive, helping drive strong machinery sales, increased feed volumes and a good start to the year in the Country Stores, although fuel volumes were lower because of the mild and wet weather.

Engineering activity levels high

Work continues on the significant fabrication contract that was delayed until almost the end of FY17, enabling the UK manufacturing business to be trading well ahead of the prior year. The strength of the order book indicates that this trend is set to continue for the rest of the year. The remote handling businesses continue to perform well as they too work through a strong order book. Looking ahead, the extension of the German premises, scheduled for completion later this calendar year, will provide additional capacity. The integration of NuVision, acquired in August 2017, is progressing as planned and presents an opportunity to sell German designed remote handling equipment more widely in the US.

Valuation: Uplift as US feed block market recovers

We leave our estimates unchanged, other than revising group revenues upwards (FY18 from £364.2m to £370.1m; FY19 from £368.4m to £377.5m: FY20 from £372.8m to £383.7m) to reflect higher feed and fuel prices. Our DCF analysis, which uses a conservative 10.0% WACC and 1.0% terminal growth rate, gives a fair value of 167p/share (unchanged). Continued recovery in the US feed block market should help close the valuation gap.

Exhibit 1: Financial summary

£m

2016

2017

2018e

2019e

2020e

Year-end Aug

PROFIT & LOSS

Revenue

 

314.9

346.2

370.1

377.5

383.7

EBITDA

 

16.5

13.9

18.7

19.8

20.6

Operating Profit (before amort. and except).

 

12.9

9.8

14.1

15.1

15.8

Amortisation of acquired intangibles

(0.2)

(0.1)

(0.5)

(0.5)

(0.5)

Share-based payments

0.1

(0.5)

(0.5)

(0.5)

(0.5)

Exceptionals

0.0

(1.3)

0.0

0.0

0.0

Operating Profit

12.8

7.9

13.1

14.1

14.8

Net Interest

(0.8)

(0.7)

(1.0)

(1.0)

(1.0)

Share of post-tax profits in JVs and associates

2.1

2.8

2.8

2.8

2.8

Profit Before Tax (norm)

 

14.2

11.9

15.9

16.9

17.6

Profit Before Tax (FRS 3)

 

14.1

10.0

14.9

15.9

16.6

Tax

(2.9)

(1.7)

(3.1)

(3.8)

(4.0)

Profit After Tax (norm)

11.2

9.9

12.8

13.1

13.6

Profit After Tax (FRS 3)

11.2

8.3

11.8

12.1

12.6

Post tax profit (loss) relating to discontinued operations

2.8

0.0

0.0

0.0

0.0

Minority interest

(1.5)

(1.3)

(1.3)

(1.3)

(1.3)

Net income (norm)

9.7

8.6

11.5

11.8

12.3

Net income (FRS 3)

12.5

7.0

10.5

10.8

11.3

Average Number of Shares Outstanding (m)

90.1

91.4

91.4

91.4

91.4

EPS - normalised (p)

 

10.8

9.4

12.5

12.9

13.5

EPS - normalised diluted (p)

 

10.4

9.4

12.4

12.8

13.4

EPS - FRS 3 (p)

 

13.8

7.7

11.5

11.8

12.4

Dividend per share (p)

3.8*

4.0

4.2

4.4

4.6

EBITDA Margin (%)

5.2

4.0

5.1

5.2

5.4

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

4.1

2.8

3.8

4.0

4.1

BALANCE SHEET

Fixed Assets

 

63.1

87.9

86.6

85.2

83.6

Intangible Assets

11.7

26.5

26.4

26.2

26.1

Tangible Assets and Deferred tax assets

51.4

61.4

60.2

58.9

57.5

Current Assets

 

139.1

121.1

122.1

124.7

127.6

Stocks

33.4

37.0

38.5

39.0

39.5

Debtors

57.2

60.2

63.5

64.5

65.0

Cash

48.4

23.9

20.1

21.2

23.1

Current Liabilities

 

(69.0)

(73.7)

(71.7)

(69.2)

(66.7)

Creditors including tax, social security and provisions

(47.3)

(56.7)

(57.7)

(58.2)

(58.7)

Short term borrowings

(21.6)

(17.1)

(14.1)

(11.1)

(8.1)

Long Term Liabilities

 

(23.1)

(29.4)

(29.4)

(29.4)

(29.4)

Long term borrowings

(18.6)

(21.0)

(21.0)

(21.0)

(21.0)

Retirement benefit obligation

0.0

0.0

0.0

0.0

0.0

Other long term liabilities

(4.5)

(8.4)

(8.4)

(8.4)

(8.4)

Net Assets

 

110.1

105.9

107.6

111.2

115.2

Minority interest

(13.4)

(14.4)

(15.4)

(16.4)

(17.4)

Shareholders’ equity

 

96.7

91.5

92.2

94.8

97.7

CASH FLOW

Operating Cash Flow

 

11.7

15.1

14.9

18.8

20.1

Net Interest

(0.5)

(0.7)

(1.0)

(1.0)

(1.0)

Tax

(1.1)

(1.2)

(3.1)

(3.8)

(4.0)

Investment activities

(2.9)

(1.1)

(3.8)

(3.8)

(3.8)

Acquisitions/disposals

22.7

(13.2)

(4.1)

(2.3)

(2.3)

Equity financing and other financing activities

1.0

0.1

0.0

0.0

0.0

Dividends

(3.3)

(19.5)

(3.7)

(3.8)

(4.0)

Net Cash Flow

27.5

(20.4)

(0.8)

4.0

5.0

Opening net debt/(cash)

 

24.4

(8.1)

14.1

14.9

10.9

HP finance leases initiated

0.0

0.0

0.0

0.0

0.0

Other

(5.1)

1.9

0.0

0.0

0.0

Closing net debt/(cash)

 

(8.1)

14.1

14.9

10.9

5.9

Source: Company 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 Pty Limited (Edison Aus) [46085869] is the Australian subsidiary of Edison. Edison Germany is a branch entity of Edison Investment Research Limited [4794244]. www.edisongroup.com

DISCLAIMER
Copyright 2018 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 Investment Research Pty Ltd (Corporate Authorised Representative (1252501) of Myonlineadvisers Pty Ltd (AFSL: 427484)) and any access to it, is intended only for "wholesale clients" within the meaning of the Corporations Act 2001 of Australia. 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 2018. “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 Pty Limited (Edison Aus) [46085869] is the Australian subsidiary of Edison. Edison Germany is a branch entity of Edison Investment Research Limited [4794244]. www.edisongroup.com

DISCLAIMER
Copyright 2018 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 Investment Research Pty Ltd (Corporate Authorised Representative (1252501) of Myonlineadvisers Pty Ltd (AFSL: 427484)) and any access to it, is intended only for "wholesale clients" within the meaning of the Corporations Act 2001 of Australia. 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 2018. “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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