Carr's Group |
Supplements sales offset low oil and gas investment |
AGM update |
General industrials |
12 January 2021 |
Share price performance
Business description
Next event
Analyst
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* |
EPS* |
DPS |
P/E |
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.
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