Last close As at 05/08/2026
GBP18.88
▲ 108.00 (6.07%)
Market capitalisation
GBP572m
Avon Rubber
Avon Rubber |
Environmental awareness |
AGM trading update |
Aerospace & defence |
27 January 2016 |
Share price performance
Business description
Next event
Analyst
Avon Rubber is a research client of Edison Investment Research Limited |
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Avon Rubber’s AGM trading update has reconfirmed strong cash generation, but also highlighted a less favourable Q1 environment. With Dairy markets remaining soft as identified at the full year, we are taking a more cautious view on H1 results, leading to a c 4% downgrade to EPS. As usual, the timing of receipt and delivery of impact orders in Protection & Defence will also drive H1:H2 weighting. Longer-term growth opportunities, supported by product development, market expansion and acquisitions, remain and provide substantial upside opportunity.
Year end |
Revenue (£m) |
PBT* |
EPS* |
DPS |
P/E |
Yield |
09/14 |
124.8 |
16.6 |
43.7 |
5.6 |
18.9 |
0.7 |
09/15 |
134.3 |
19.8 |
56.1 |
7.3 |
14.7 |
0.9 |
09/16e |
150.6 |
20.5 |
54.7 |
9.5 |
15.1 |
1.2 |
09/17e |
157.4 |
21.7 |
56.5 |
12.0 |
14.6 |
1.5 |
Note: *PBT and EPS are normalised, excluding acquired intangible amortisation, IAS19 (R) charges and exceptional items.
Protection & Defence goes about its business
Protection & Defence has focused delivery on the core US DoD M50 programme as expected, while timing of impact order receipt and delivery, one of which the company expects to receive during H1, could alter the H1:H2 weighting. As such, this is business as usual in export markets. Integration of the Argus business, acquired in October 2015, has progressed rapidly and smoothly with manufacturing moved to the Melksham facility in December and US approvals currently being undertaken that are likely to benefit H2 results.
Dairy market softness continuing
The statement highlights that the environment in Dairy remains soft in Europe due to low milk prices driving a typical lengthening of consumable replacement cycles. This effect is exacerbated in the more capital-intensive InterPuls business, the integration of which has been positive since acquisition in August 2015. As a result, we are taking a prudent view on H1 dairy revenues, trimming by c 10%, equating to a c £1m easing of our Dairy FY16 PBT, which flows through to FY17. Even in such an environment, the group has continued to see encouraging levels in uptake of the Cluster Exchange service in both North American and European markets.
Valuation: Long-term value drivers remain
Our fair value eases to 1,065p/share (previously 1,110p) following the c 4% downgrade to FY16 and FY17 EPS estimates. Despite ongoing softness in the Dairy market, the long-term drivers across both divisions, as highlighted in our November 2015 Outlook note, remain intact. As such, we maintain our upside scenario analysis, which would equate to an updated indicative fair value of 1,310p/share (previously 1,355p/share). In addition, cash generation has also remained strong, with net debt reducing to £10.0m as at 31 December 2015 (30 September 2015: £13.2m) despite the £3.5m acquisition spend on Argus.
Exhibit 1: Financial summary
Year end 30 September |
£'000s |
2013 |
2014 |
2015 |
2016e |
2017e |
|
PROFIT & LOSS |
IFRS |
IFRS |
IFRS |
IFRS |
IFRS |
||
Revenue |
|
|
124,851 |
124,779 |
134,318 |
150,556 |
157,433 |
Cost of Sales |
(91,140) |
(83,264) |
(89,629) |
(100,464) |
(105,054) |
||
Gross Profit |
33,711 |
41,515 |
44,689 |
50,091 |
52,379 |
||
EBITDA (before amort. and except.) |
|
|
20,443 |
23,303 |
25,225 |
28,065 |
31,033 |
Operating Profit (before amort. and except.) |
|
|
14,223 |
17,003 |
20,215 |
20,956 |
22,041 |
Amortisation of Intangibles |
(417) |
(261) |
(1,043) |
(2,500) |
(2,500) |
||
Exceptionals |
(383) |
(2,017) |
(604) |
0 |
0 |
||
Other |
(420) |
(400) |
318 |
(400) |
(400) |
||
Operating Profit |
|
|
13,003 |
14,325 |
18,886 |
18,056 |
19,141 |
Net Interest |
(347) |
(274) |
(147) |
(300) |
(150) |
||
Other finance costs |
(253) |
(187) |
(247) |
(180) |
(200) |
||
Profit Before Tax (norm) |
|
|
13,656 |
16,554 |
19,821 |
20,476 |
21,691 |
Profit Before Tax (FRS 3) |
12,403 |
13,864 |
17,838 |
17,576 |
18,791 |
||
Tax |
(3,566) |
(3,053) |
(2,672) |
(3,954) |
(4,228) |
||
Tax adjustment |
(122) |
(450) |
(253) |
0 |
0 |
||
Profit After Tax (norm) |
|
|
9,968 |
13,051 |
16,896 |
16,521 |
17,063 |
Profit After Tax (FRS 3) |
8,837 |
10,811 |
15,166 |
13,621 |
14,563 |
||
Average Number of Shares Outstanding (m) |
29.5 |
29.9 |
30.1 |
30.2 |
30.2 |
||
EPS - continuing, normalised (p) |
|
|
33.8 |
43.7 |
56.1 |
54.7 |
56.5 |
EPS - continuing, FRS 3 (p) |
|
|
30.0 |
36.2 |
50.4 |
45.1 |
48.2 |
DPS (p) |
4.3 |
5.6 |
7.3 |
9.5 |
12.0 |
||
Gross Margin (%) |
27% |
33% |
33% |
33% |
33% |
||
EBITDA Margin (%) |
16% |
19% |
19% |
19% |
20% |
||
Operating Margin (before amort. and except.) (%) |
11% |
14% |
15% |
14% |
14% |
||
BALANCE SHEET |
|||||||
Fixed Assets |
|
|
36,928 |
36,815 |
74,095 |
73,618 |
73,758 |
Intangible Assets |
16,541 |
17,240 |
41,309 |
42,220 |
43,250 |
||
Tangible Assets |
20,387 |
19,575 |
28,212 |
26,824 |
25,933 |
||
Other |
0 |
0 |
4,574 |
4,574 |
4,574 |
||
Current Assets |
|
|
34,449 |
34,971 |
34,481 |
37,225 |
40,735 |
Stocks |
13,374 |
12,887 |
17,123 |
17,773 |
18,899 |
||
Debtors |
20,891 |
19,159 |
17,026 |
19,121 |
19,522 |
||
Cash |
184 |
2,925 |
332 |
332 |
2,314 |
||
Assets held for sale |
0 |
0 |
0 |
0 |
0 |
||
Current Liabilities |
|
|
(23,369) |
(26,453) |
(27,178) |
(27,660) |
(28,612) |
Creditors |
(17,296) |
(19,601) |
(18,005) |
(20,837) |
(21,789) |
||
Short term borrowings |
0 |
0 |
(2,350) |
0 |
0 |
||
Tax |
(6,073) |
(6,852) |
(6,823) |
(6,823) |
(6,823) |
||
Liabilities for assets held for sale |
0 |
0 |
0 |
0 |
0 |
||
Long Term Liabilities |
|
|
(27,312) |
(20,317) |
(39,194) |
(35,676) |
(27,622) |
Long term borrowings |
(11,059) |
0 |
(11,143) |
(7,625) |
429 |
||
Deferred Tax |
(2,977) |
(2,315) |
(9,734) |
(9,734) |
(9,734) |
||
Retirement benefit obligations |
(11,279) |
(16,029) |
(16,605) |
(16,605) |
(16,605) |
||
Provisions |
(1,997) |
(1,973) |
(1,712) |
(1,712) |
(1,712) |
||
Other |
0 |
0 |
0 |
0 |
0 |
||
Net Assets |
|
|
20,696 |
25,016 |
42,204 |
47,507 |
58,259 |
CASH FLOW |
|||||||
Operating Cash Flow |
14,708 |
25,004 |
20,446 |
27,353 |
27,557 |
||
Net Interest |
(364) |
(314) |
(147) |
(300) |
(150) |
||
Tax |
(2,229) |
(2,903) |
(3,270) |
(3,954) |
(4,228) |
||
Capex |
(11,054) |
(6,815) |
(6,183) |
(8,732) |
(9,131) |
||
Acquisitions/disposals |
(437) |
(31) |
(21,228) |
(3,500) |
0 |
||
Equity financing |
(1,765) |
0 |
(1,152) |
(1,500) |
(2,000) |
||
Dividends |
(1,132) |
(1,422) |
(1,859) |
(2,198) |
(2,870) |
||
Net Cash Flow |
(2,273) |
13,519 |
(13,393) |
7,168 |
9,178 |
||
Opening net (debt)/cash |
|
|
(8,725) |
(15,937) |
2,925 |
(13,161) |
(7,293) |
Cash FX effect |
123 |
281 |
97 |
0 |
0 |
||
Discontinued operations / relocation |
0 |
0 |
0 |
(1,300) |
0 |
||
Debt FX and Other |
(5,062) |
5,062 |
(2,790) |
0 |
0 |
||
Closing net (debt)/cash |
|
|
(15,937) |
2,925 |
(13,161) |
(7,293) |
1,885 |
Source: Company accounts, Edison Investment Research
|