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Supplements sales offset low oil and gas investment

Carr's Group 12 January 2021 Update
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Carr's Group

Supplements sales offset low oil and gas investment

AGM update

General industrials

12 January 2021

Price

122.75p

Market cap

£114m

Net debt (£m) at end November 2020 (excluding finance leases)

20.4

Shares in issue

92.5m

Free float

58.6%

Code

CARR

Primary exchange

LSE

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

(0.6)

19.5

(19.3)

Rel (local)

(4.7)

5.2

(11.6)

52-week high/low

160.0p

88.0p

Business description

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

Next event

H121 results

April 2021

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 19 weeks of FY21 notes that trading in Agriculture was ahead of management expectations because of strong sales of supplements. This was offset by a weaker than expected performance in the Engineering division caused by continued low crude oil prices. We note that net debt (excluding leases) was 24% lower year-on-year at the end of November, reflecting close inventory control and lower commodity prices. We leave our estimates broadly unchanged and reiterate our indicative valuation of 170p/share.

Year end

Revenue (£m)

PBT*
(£m)

EPS*
(p)

DPS
(p)

P/E
(x)

Yield
(%)

08/19

403.9

18.0

14.6

4.75

8.4

3.9

08/20

395.6

14.9

11.9

4.75

10.3

3.9

08/21e

421.2

15.4

12.2

4.90

10.1

4.0

08/22e

436.5

16.5

13.1

5.10

9.4

4.2

Note: *PBT and EPS are normalised, excluding amortisation of acquired intangibles and exceptional items but not share-based payments.

Agriculture benefitting from robust US cattle prices

The division has remained fully operational during the coronavirus-related lockdowns. Cattle prices in the US have remained robust since the recovery noted towards the end of FY20, stimulating demand for feed blocks. Exports of both feed blocks and Animax supplements to the Republic of Ireland have increased following deployment of additional sales personnel there. Both these positive trends are likely to continue since US cattle prices are not significantly above the 10-year average and the Brexit deal ensures there are no tariffs on exports to Ireland. Trading in the UK Agriculture business has been in line with management expectations for FY21 so far and may potentially benefit from continued farmer confidence now the worry of a no-deal Brexit has gone, and from the current cold weather if this is prolonged.

Engineering affected by a weak oil price

Divisional performance is underpinned by long-term projects for the nuclear and defence sectors. These are progressing well, without some of the delays that have marred performance in previous years. While the major robotics order from Japan has still not been received, this is expected to benefit FY22, not FY21. However, global oil prices remain relatively low as the pandemic drags on, reducing investment by the oil and gas industry. This is having a negative impact on some of the UK manufacturing activity. While the division has also remained fully operational through the recent lockdowns, some revenue may slip into FY22 if prolonged lockdowns delay the completion of installations on customer sites.

Valuation: Indicative valuation remains 170p/share

Our DCF analysis gives an indicative value of 170p/share (unchanged). Confirmation that outperformance in the Agriculture division can compensate for the reduced Engineering revenues associated with the low oil price should, in our view, support the share price and help move it back towards our indicative valuation. So should news of the delayed major engineering order from Japan. -

Revisions to estimates

We have made minor revisions to our estimates to reflect:

Outperformance in the Agriculture division, which we believe is likely to be sustained.

Lower heating and fuel oil prices, which affect Agriculture revenues but not operating profit.

Lower UK manufacturing activity related to low levels of investment in the oil and gas industry. Given the long-term nature of contracts in the nuclear and defence industry, we believe it is unlikely that this underperformance will be compensated for by outperformance elsewhere in the Engineering division.

However, profit at the group level remains unchanged.

Exhibit 2: Changes to estimates

Year end 31 August

2020

2021e

2022e

2023e

(£m)

Actual

Old

New

Change

Old

New

Change

Old

New

Change

Agriculture revenues

342.6

365.0

368.0

0.8%

375.0

380.0

1.3%

390.0

392.0

0.5%

Engineering revenues

53.0

55.0

53.2

-3.3%

60.0

56.5

-5.8%

65.0

64.0

-1.5%

Group revenues

395.6

420.0

421.2

0.3%

435.0

436.5

0.3%

455.0

456.0

0.2%

Agriculture EBITA including JVs

13.4

13.4

13.9

3.7%

13.7

14.0

2.2%

14.1

14.2

0.7%

Engineering EBITA

3.8

4.5

4.0

-11.1%

5.2

4.9

-5.8%

5.9

5.8

-1.7%

Central costs

(1.0)

(1.0)

(1.0)

0.0%

(1.0)

(1.0)

0.0%

(1.1)

(1.1)

0.0%

Group EBITA after deducting share-based payments

16.2

16.9

16.9

0.0%

17.9

17.9

0.0%

18.9

18.9

0.0%

Normalised PBT after deducting share-based payments

14.9

15.4

15.4

0.0%

16.5

16.5

0.0%

17.6

17.6

0.0%

Normalised undiluted EPS after deducting share-based payments (p)

11.9

12.2

12.2

0.0%

13.1

13.1

0.0%

14.2

14.2

0.0%

Dividend per share (p)

4.75

4.9

4.9

0.0%

5.1

5.1

0.0%

5.3

5.3

0.0%

Net debt including IFRS16 finance leases

32.8

33.4

33.6

0.6%

31.8

32.1

0.8%

27.9

28.1

0.7%

Source: Company data, Edison Investment Research

Exhibit 3: Financial summary

£m

2019

2020

2021e

2022e

2023e

31-August

IFRS

IFRS

IFRS

IFRS

IFRS

INCOME STATEMENT

Revenue

 

 

403.9

395.6

421.2

436.5

456.0

EBITDA

 

 

23.8

23.4

24.1

25.0

26.1

Operating Profit (before amor. and except.)

 

18.9

16.2

16.9

17.9

18.9

Amortisation of acquired intangibles

(0.8)

(1.4)

(1.3)

(1.3)

(1.3)

Exceptionals

(0.9)

(1.0)

0.0

0.0

0.0

Share of post-tax profit from JVs and associate

2.7

2.6

2.7

2.7

2.8

Reported operating profit

17.2

13.8

15.6

16.6

17.6

Net Interest

(0.9)

(1.3)

(1.5)

(1.4)

(1.3)

Profit Before Tax (norm)

 

 

18.0

14.9

15.4

16.5

17.6

Profit Before Tax (reported)

 

 

16.3

12.5

14.1

15.2

16.3

Reported tax

(2.7)

(1.6)

(2.5)

(2.8)

(3.0)

Profit After Tax (norm)

15.1

13.3

12.9

13.7

14.7

Profit After Tax (reported)

13.6

10.9

11.6

12.4

13.4

Minority interests

(1.6)

(1.4)

(1.6)

(1.6)

(1.6)

Net income (normalised)

13.4

11.0

11.3

12.1

13.1

Net income (reported)

12.0

9.5

10.0

10.8

11.8

Basic average number of shares outstanding (m)

91.8

92.3

92.5

92.5

92.5

EPS - normalised (p)

 

 

14.6

11.9

12.2

13.1

14.2

EPS - normalised fully diluted (p)

 

 

14.2

11.8

12.0

12.8

13.8

EPS - basic reported (p)

 

 

13.1

10.3

10.8

11.7

12.8

Dividend per share (p)

4.75

4.75

4.90

5.10

5.25

EBITDA Margin (%)

5.9

5.9

5.7

5.7

5.7

Normalised Operating Margin

4.7

4.1

4.0

4.1

4.2

BALANCE SHEET

Fixed Assets

 

 

115.6

127.5

129.5

126.8

124.2

Intangible Assets

42.2

41.2

41.2

41.1

41.0

Tangible Assets

41.9

53.1

55.1

52.5

50.0

Investments & other

31.5

33.1

33.1

33.1

33.1

Current Assets

 

 

140.7

119.9

119.2

122.7

134.0

Stocks

46.3

41.0

41.5

43.1

47.5

Debtors

65.8

59.8

62.3

65.8

68.7

Cash & cash equivalents

28.6

17.6

13.8

12.3

16.3

Other

0.0

1.5

1.5

1.5

1.5

Current Liabilities

 

 

(88.8)

(70.8)

(71.2)

(70.4)

(73.2)

Creditors

(63.9)

(56.6)

(60.0)

(62.2)

(65.0)

Tax and social security

(1.0)

(0.0)

(0.0)

(0.0)

(0.0)

Short term borrowings

(23.9)

(14.2)

(11.2)

(8.2)

(8.2)

Other

0.0

0.0

0.0

0.0

0.0

Long Term Liabilities

 

 

(36.6)

(42.4)

(42.4)

(42.4)

(42.4)

Long term borrowings

(28.6)

(36.2)

(36.2)

(36.2)

(36.2)

Other long term liabilities

(8.0)

(6.2)

(6.2)

(6.2)

(6.2)

Net Assets

 

 

131.0

134.2

135.1

136.7

142.6

Minority interests

(16.7)

(17.0)

(18.6)

(20.2)

(21.8)

Shareholders' equity

 

 

114.3

117.1

116.5

116.6

120.8

CASH FLOW

Op Cash Flow before WC and tax

23.8

23.4

24.1

25.0

26.1

Working capital

(5.0)

5.2

0.3

(2.8)

(4.6)

Exceptional & other

(2.8)

(6.0)

(2.7)

(2.7)

(2.8)

Tax

(2.3)

(3.1)

(2.5)

(2.8)

(3.0)

Net operating cash flow

 

 

13.7

19.6

19.2

16.8

15.8

Investment activities

(4.2)

(7.6)

(10.5)

(5.8)

(5.8)

Acquisitions/disposals

(10.2)

(2.7)

(3.5)

(3.5)

0.0

Net interest

(1.1)

(1.5)

(1.5)

(1.4)

(1.3)

Equity financing

0.0

0.0

0.0

0.0

0.0

Dividends

(4.2)

(3.3)

(4.4)

(4.5)

(4.7)

Other

(0.6)

0.8

0.0

0.0

0.0

Net Cash Flow

(6.6)

5.2

(0.7)

1.5

3.9

Opening net debt/(cash)

 

 

15.4

23.8

32.8

33.6

32.1

FX

0.0

0.0

0.0

0.0

0.0

Other non-cash movements

(1.9)

(14.3)

0.0

0.0

0.0

Closing net debt/(cash)

 

 

23.8

32.8*

33.6*

32.1*

28.1*

Source: Company accounts, Edison Investment Research. Note: *Including IFRS 16 leases.


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 research department of Edison 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 2021 Edison Investment Research Limited (Edison).

Australia

Edison Investment Research Pty Ltd (Edison AU) is the Australian subsidiary of Edison. Edison AU is a Corporate Authorised Representative (1252501) of Crown Wealth Group Pty Ltd who holds an Australian Financial Services Licence (Number: 494274). 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

This document is prepared and provided by Edison 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.

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.

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

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

1185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

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

1185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

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 research department of Edison 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 2021 Edison Investment Research Limited (Edison).

Australia

Edison Investment Research Pty Ltd (Edison AU) is the Australian subsidiary of Edison. Edison AU is a Corporate Authorised Representative (1252501) of Crown Wealth Group Pty Ltd who holds an Australian Financial Services Licence (Number: 494274). 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

This document is prepared and provided by Edison 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.

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.

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

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

1185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

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

1185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

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