STABER acquisition strengthens engineering IP

Carr's Group 26 October 2016 Update

Carr's Group

STABER acquisition strengthens engineering IP

Acquisition

Consumer staples

26 October 2016

Price

141.50p

Market cap

£129m

£/€1.125

Net debt (£m) at end February 2016

27.0

Shares in issue

91.2m

Free float

78%

Code

CARR

Primary exchange

LSE

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

(5.7)

(0.4)

(7.2)

Rel (local)

(6.8)

(4.7)

(14.0)

52-week high/low

172.1p

137.0p

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

Prelims

14 November 2016

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 STABER GmbH for a net consideration of €6.75m (£6.0m). This brings key IP used in the Engineering division’s remote handling products in house. We make minor adjustments to our FY18 PBT and EPS estimates and reiterate our indicative valuation of 161p.

Year
end

Revenue (£m)

PBT*
(£m)

EPS*
(p)

DPS
(p)

P/E
(x)

Yield
(%)

08/14

429.0

17.0

13.2

3.4

10.7

2.4

08/15

411.6

18.1

14.0

3.7

10.1

2.6

08/16e

403.2

18.1

13.9

3.8

10.2

2.7

08/17e

332.2

14.6

10.7

21.4**

13.2

15.1

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

Acquisition secures innovative IP

STABER designs and manufactures fine mechanical components and modules for high-end robotic systems. The modules incorporate special gearing systems that permit the very precise control of movement required for remote handling devices. Importantly, as the modules do not depend on external cabling or hydraulic systems, there is no restriction on rotational movement. Wälischmiller and STABER have worked closely for over 50 years, with STABER providing parts for Wälischmiller’s Telbot and master-slave manipulators. Recently, STABER played a key part in helping Wälischmiller develop the Demo 2000 Telbot used for remote inspection and cleaning of tanks in the oil and gas market, an application area where equipment must meet stringent certification requirements.

Acquisitions earnings neutral in first year

The acquisition has occurred after the FY16 year-end. It is not expected to have any impact on revenues because Wälischmiller is STABER’s main customer. STABER recorded adjusted EBITDA of €0.67m for the year ended December 2015. Management expects any incremental profit generated during FY17 from bringing STABER in house to be offset by transaction-related expenses, so we leave our FY17 profit estimates unchanged. We raise our FY18 adjusted PBT estimate by £0.3m to £15.3m and our EPS estimate by 0.2p to 11.2p.This analysis excludes the benefit of bringing STABER in house to work on near-term Telbot opportunities and longer-term strategic development projects. The net consideration, €4.75m (£4.2m) on completion, €2.0m (£1.8m) deferred consideration payable by end June 2018, will be financed from funds realised from the disposal of the Food division in September.

Valuation: 161p indicative valuation reiterated

As the acquisition is not immediately earnings enhancing, we reiterate our indicative valuation of 161p. This is based on a sum-of-the parts valuation, as presented in our September update note. However, we note that this acquisition highlights how management is shifting the group’s focus from low-margin, asset-intensive activities such as flour milling to higher-margin, IP-rich activities.

Exhibit 1: Financial summary

£m

2014

2015

2016e

2017e

2018e

Year-end Aug

PROFIT & LOSS

Revenue

 

429.0

411.6

403.2

332.2

336.0

EBITDA

 

20.9

22.2

22.5

17.1

17.7

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

15.8

17.0

17.1

13.2

13.9

Amortisation of acquired intangibles

0.0

0.0

0.0

0.0

0.0

Share-based payments

(0.4)

(0.6)

(0.6)

(0.6)

(0.6)

Exceptionals

0.0

0.0

0.0

0.0

0.0

Operating Profit

15.4

16.4

16.5

12.7

13.4

Net Interest

(1.4)

(1.2)

(1.0)

(0.6)

(0.6)

Share of post-tax profits in JVs and associates

2.5

2.3

2.0

2.0

2.0

Profit Before Tax (norm)

 

17.0

18.1

18.1

14.6

15.3

Profit Before Tax (FRS 3)

 

16.6

17.5

17.5

14.1

14.8

Tax

(3.7)

(3.8)

(3.8)

(3.2)

(3.4)

Profit After Tax (norm)

13.3

14.3

14.2

11.4

12.0

Profit After Tax (FRS 3)

12.9

13.7

13.6

10.9

11.4

Post tax profit (loss) relating to discontinued operations

0.0

0.0

0.0

0.0

0.0

Minority interest

(1.5)

(1.7)

(1.7)

(1.7)

(1.7)

Net income (norm)

11.8

12.6

12.5

9.7

10.3

Net income (FRS 3)

11.4

12.0

11.9

9.2

9.7

Average Number of Shares Outstanding (m)

89.0

89.6

90.1

91.2

91.2

EPS - normalised (p)

 

13.2

14.0

13.9

10.7

11.2

EPS - normalised fully diluted (p)

 

12.8

13.6

13.4

10.3

10.9

EPS - FRS 3 (p)

 

12.3

13.4

13.3

10.0

10.6

Dividend per share (p)

3.4

3.7

3.8

21.4*

4.0

EBITDA Margin (%)

4.9

5.4

5.6

5.2

5.3

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

3.7

4.1

4.2

4.0

4.1

BALANCE SHEET

Fixed Assets

 

83.4

86.5

65.4

70.9

70.5

Intangible Assets

10.3

11.3

11.1

15.3

15.3

Tangible Assets and Deferred tax assets

73.1

75.2

54.3

55.6

55.3

Current Assets

 

114.3

116.9

109.6

94.2

97.0

Stocks

33.3

35.0

31.4

32.4

33.0

Debtors

63.7

65.3

55.1

56.1

57.1

Cash

17.3

16.5

23.2

5.8

6.9

Current Liabilities

 

(75.6)

(70.2)

(60.8)

(58.9)

(56.7)

Creditors including tax, social security and provisions

(55.9)

(55.0)

(48.7)

(49.7)

(50.5)

Short term borrowings

(19.7)

(15.2)

(12.2)

(9.2)

(6.2)

Long Term Liabilities

 

(32.3)

(34.2)

(8.5)

(8.5)

(8.5)

Long term borrowings

(22.2)

(25.7)

0.0

0.0

0.0

Retirement benefit obligation

0.0

0.0

0.0

0.0

0.0

Other long term liabilities

(10.1)

(8.5)

(8.5)

(8.5)

(8.5)

Net Assets

 

89.8

99.0

105.8

97.7

102.4

Minority interest

(10.2)

(11.9)

(11.9)

(11.9)

(11.9)

Shareholders’ equity

 

79.7

87.1

93.8

85.8

90.5

CASH FLOW

Operating Cash Flow

 

17.1

15.1

20.3

16.2

16.9

Net Interest

(1.4)

(1.2)

(1.0)

(0.6)

(0.6)

Tax

(3.2)

(4.0)

(3.8)

(3.2)

(3.4)

Investment activities

(7.5)

(4.0)

(8.4)

(3.4)

(3.4)

Acquisitions/disposals

(3.6)

(1.7)

23.9

(4.2)

(1.8)

Equity financing and other financing activities

(4.1)

(1.8)

7.9**

0.0

0.0

Dividends

(2.9)

(3.1)

(3.3)

(19.2)

(3.6)

Net Cash Flow

(5.7)

(0.7)

35.5

(14.5)

4.2

Opening net debt/(cash)

 

22.1

24.6

24.4

(11.1)

3.4

HP finance leases initiated

(2.3)

0.0

0.0

0.0

0.0

Other

(5.5)

(0.9)

0.0

0.0

0.0

Closing net debt/(cash)

 

24.6

24.4

(11.1)

3.4

(0.8)

Source: Company accounts, Edison Investment Research. Note: *Including 17.54p special dividend. **£7.9m debt sold with Food division.

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, Sydney and Wellington. 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 2016 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 2016. “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.

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United Kingdom

New York +1 646 653 7026

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US

Sydney +61 (0)2 9258 1161

Level 25, Aurora Place

88 Phillip St, Sydney

NSW 2000, Australia

Wellington +64 (0)48 948 555

Level 15, 171 Featherston St

Wellington 6011

New Zealand

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

Wellington +64 (0)48 948 555

Level 15, 171 Featherston St

Wellington 6011

New Zealand

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, Sydney and Wellington. 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 2016 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 2016. “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

Wellington +64 (0)48 948 555

Level 15, 171 Featherston St

Wellington 6011

New Zealand

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

Wellington +64 (0)48 948 555

Level 15, 171 Featherston St

Wellington 6011

New Zealand

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