Last close As at 05/08/2026
GBP1.32
▲ 1.00 (0.76%)
Market capitalisation
GBP69m
Research: Industrials
Carr’s Group’s trading update for the 19 weeks ended 11 July 2020 notes that the company continues to trade in line with management expectations for FY20. The board is combining the two interim dividend payments this year into a single interim payment of 2.25p/share, equivalent to the two interim payments made in FY19. We leave our FY20 estimates unchanged but reduce our FY21 EPS estimate by 12% to reflect lower cattle prices in the US and weaker demand from the oil and gas industry, both related to the coronavirus pandemic.
Written by
Carr’s Group |
Confirmation of interim dividend |
Interim management statement |
Basic materials |
15 July 2020 |
Share price performance
Business description
Next events
Analyst
Carr's Group is a research client of Edison Investment Research Limited |
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Carr’s Group’s trading update for the 19 weeks ended 11 July 2020 notes that the company continues to trade in line with management expectations for FY20. The board is combining the two interim dividend payments this year into a single interim payment of 2.25p/share, equivalent to the two interim payments made in FY19. We leave our FY20 estimates unchanged but reduce our FY21 EPS estimate by 12% to reflect lower cattle prices in the US and weaker demand from the oil and gas industry, both related to the coronavirus pandemic.
Year end |
Revenue (£m) |
PBT* |
EPS* |
DPS |
P/E |
Yield |
08/18 |
403.2 |
17.7 |
15.2 |
4.5 |
7.0 |
4.2 |
08/19 |
403.9 |
18.9 |
15.6 |
4.8 |
7.0 |
4.5 |
08/20e |
372.0 |
15.2 |
12.0 |
4.8 |
8.8 |
4.5 |
08/21e |
382.5 |
16.6 |
13.4 |
4.9 |
7.9 |
4.6 |
Note: *PBT and EPS are normalised, excluding amortisation of acquired intangibles, exceptional items and share-based payments.
US cattle prices affected by meat packer closures
All of the division’s UK and overseas manufacturing facilities have remained operational throughout the pandemic, as has the network of UK retail outlets. Over the last 19 weeks trading has been ahead of expectations. After a temporary dip in average farmgate milk prices at the start of the lockdown, the UK livestock industry has operated as usual. The unseasonably dry weather at the start of the period followed by cooler than usual temperatures has inhibited forage growth and resulted in marginally higher demand for feeds, feed supplements and fuels. However, the closure of large meat processing plants in the US because of COVID-19 outbreaks has led to a drop in cattle prices which has adversely affected supplement sales in the region. Management expects that low US cattle prices and weak demand for supplements there will continue into FY21.
Low oil price affecting investment
The main UK engineering sites have remained operational and the US engineers have been able to continue their work from home. However, the lockdown has caused some temporary interruptions to nuclear and defence projects because personnel have not been able to visit customer sites. In addition, the low oil price caused by the pandemic has resulted in a reduction in investment from the oil and gas industry. Management expects that this situation will continue into FY21.
Valuation: Indicative valuation of 170p/share
Our DCF analysis gives an indicative value of 170p/share (previously 172p/share). At the current share price, Carr’s is trading below its peers with regards to mean EV/EBITDA (5.7x vs 7.7x) and mean P/E (8.8x vs 11.8x) multiples for the year ending August 2020. Confirmation that Carr’s diversified business model can address longer-term issues caused by the COVID-19 pandemic, clarity on post-Brexit UK trading arrangements from 2021 onwards and future UK farming subsidies, should, in our view, help move the share price back towards our indicative valuation.
Revisions to estimates
We have not changed our FY20 estimates because the overperformance in the agriculture division over the last 19 weeks balances the underperformance in the engineering division. Our FY20 estimates were revised down in March because the UK agricultural activities had been adversely affected by the mild winter that has depressed demand for feed and feed supplements and there were delays in receiving orders in the engineering division. We cut our FY20 and FY21 EPS estimates by 26% and 10% respectively at this point.
Exhibit 1: Estimate revisions
Year end 31 August (£m) |
2019 |
2020e |
2021e |
2022e |
||||
Unchanged |
Old |
New |
Change |
Old |
New |
Change |
||
Agriculture revenues |
357.4 |
320.0 |
355.0 |
330.0 |
-7.0% |
360.0 |
360.0 |
0.0% |
Engineering revenues |
46.5 |
52.0 |
57.6 |
52.5 |
-8.9% |
58.8 |
58.8 |
0.0% |
Group revenues |
403.9 |
372.0 |
412.6 |
382.5 |
-7.3% |
418.8 |
418.8 |
0.0% |
Agriculture EBITA including JVs |
14.7 |
11.4 |
13.8 |
12.8 |
-7.3% |
14.1 |
14.1 |
0.0% |
Engineering EBITA |
5.9 |
5.9 |
7.0 |
6.0 |
-95.0% |
7.1 |
7.1 |
0.0% |
Group EBITA (after deducting share-based payments) |
18.9 |
15.5 |
18.8 |
16.8 |
-10.4% |
19.2 |
19.2 |
0.0% |
Normalised PBT |
18.9 |
15.2 |
18.5 |
16.6 |
-10.6% |
18.9 |
18.9 |
0.0% |
Normalised basic EPS (p) |
15.6 |
12.0 |
15.2 |
13.4 |
-11.8% |
15.6 |
15.6 |
0.0% |
Dividend per share (p) |
4.75 |
4.75 |
4.90 |
4.90 |
0.0% |
5.10 |
5.10 |
0.0% |
Net debt/(cash) |
23.8 |
29.3 |
26.7 |
23.9 |
-10.5% |
23.3 |
24.7 |
5.8% |
Source: Company data, Edison Investment Research
We have changed our FY21 estimates to reflect:
■
Lower demand for feed supplements in the US because cattle prices are not expected to recover quickly because there is an oversupply of meat.
■
Lower investment from the oil and gas industry related to lower oil prices. This is likely to result in lower orders from this sector of the group’s UK manufacturing businesses.
We have not changed our FY22 estimates, though are mindful of the potential impact of sustained oil price weakness, depressed US cattle prices and a no-deal Brexit may have on the speed at which the group’s profits recover from FY20 levels.
Exhibit 2: Alternative presentation of adjusted PBT and EPS
Year end 31 August (£m) |
FY20e |
FY21e |
FY22e |
Edison normalised PBT |
15.2 |
16.6 |
18.9 |
Share-based payments |
(0.9) |
(0.9) |
(0.9) |
PBT after deducting share-based payments |
14.3 |
15.7 |
18.0 |
Tax (£m) |
(2.5) |
(2.6) |
(3.0) |
Minority interest |
(1.6) |
(1.6) |
(1.6) |
Net income after deducting share-based payments |
10.2 |
11.5 |
13.5 |
Number of shares (m) |
92.4 |
92.4 |
92.4 |
EPS after deducting share-based payments (p) |
11.0 |
12.4 |
14.6 |
Edison normalised EPS (p) |
12.0 |
13.4 |
15.6 |
Source: Edison Investment Research
Valuation
DCF methodology
Our valuation methodology is based on a DCF analysis, supplemented with a comparison of peer group multiples. We continue to use a conservative 10.0% WACC and a 1.0% terminal growth rate for our DCF calculation. This gives a fair value of 170p/share (previously 172p/share). We prefer this metric because it looks beyond the short-term issues of unseasonal weather and delays to engineering orders that are specific to the group. The valuation gap should begin to close as investors gain confidence in the likelihood of a recovery in the agricultural division, which will be supported by better visibility on the length of the downturn in US cattle prices, post-Brexit trading arrangements in the UK from CY21 onwards and future UK farming subsidies. Positive news regarding contracts to replenish the order book for the German robotics business will also help push the share price upwards.
Exhibit 3: DCF valuation
|
Discount rate (post-tax, nominal) |
|||||
9.0% |
9.5% |
10.0% |
10.5% |
11.0% |
||
Terminal growth (%) |
0.0% |
177 |
166 |
156 |
147 |
138 |
1.0% |
196 |
182 |
170 |
160 |
150 |
|
1.5% |
208 |
192 |
179 |
167 |
157 |
|
2.0% |
221 |
204 |
189 |
176 |
164 |
|
3.0% |
253 |
231 |
212 |
196 |
182 |
|
Source: Edison Investment Research
Peer-based multiples
Exhibit 4: Calendarised peer-based multiples
ytd performance |
Market cap |
EV/EBITDA (x) |
P/E (x) |
Year 1 dividend |
|||
Name |
(%) |
(£m) |
2020e |
2021e |
2020e |
2021e |
yield (%) |
ForFarmers |
(1.5) |
532.2 |
6.3 |
9.0 |
11.8 |
11.8 |
4.8 |
NWF Group |
9.4 |
96.1 |
6.9 |
7.9 |
10.8 |
11.3 |
3.5 |
Origin Enterprises |
(17.8) |
344.4 |
12.1 |
9.0 |
11.7 |
7.4 |
1.1 |
Ridley Corporation |
(26.7) |
135.4 |
7.5 |
7.7 |
13.7 |
13.1 |
4.7 |
Wynnstay Group |
0.8 |
61.1 |
5.6 |
5.0 |
10.8 |
9.3 |
4.7 |
Mean |
7.7 |
7.7 |
11.8 |
10.6 |
3.8 |
||
Carr's Group @ current share price of 106p/share |
(31.1) |
98.0 |
5.7 |
5.4 |
8.8 |
7.9 |
4.5 |
Carr's Group @ Edison DCF of 170p/share |
(31.1) |
157.1 |
8.5 |
8.0 |
14.2 |
12.7 |
2.8 |
Source: Refinitiv, Edison Investment Research. Note: Prices at 9 July 2020
In Exhibit 4 we compare Carr’s EV/EBITDA and P/E multiples for the years ended August 2020 and August 2021 with calendarised multiples for listed peers in the agricultural sector. At the current share price (106p), Carr’s is trading close to or below the bottom of the range for its peers on all metrics. In our opinion this is undeserved because Carr’s feed block activity in North America, mainland Europe and New Zealand reduces the exposure of its agricultural businesses to challenges caused by the UK climate and government policy. This sets Carr’s apart from both NWF and Wynnstay, whose agricultural activities are confined to the UK.
At the indicative value of 170p/share derived from our DCF calculation, Carr’s is trading at a substantial premium to its peers on all metrics. This is not surprising given that a DCF valuation looks at the long-term cash-generation profile rather than short-term profits.
At current levels, Carr’s Group offers a high dividend yield (4.5%), although this is in line with most of its peers. The fact that management has combined the deferred initial interim payment with the second interim dividend payment (typically the group pays two interim dividends) to give a single payment equal to the two interim dividends paid out in FY19 suggests that the total FY20 dividend will be maintained at FY19 levels. We note that current cash levels are ahead of the board’s expectations. Given that our estimates show an improvement in profitability in FY21, an increase in the dividend next year seems justified. FY21 dividend cover is 2.7x.
Exhibit 5: Financial summary
£m |
2018 |
2019 |
2020e |
2021e |
2022e |
||
Year end 31 August |
IFRS |
IFRS |
IFRS |
IFRS |
IFRS |
||
INCOME STATEMENT |
|||||||
Revenue |
|
|
403.2 |
403.9 |
372.0 |
382.5 |
418.8 |
EBITDA |
|
|
23.1 |
24.7 |
21.3 |
22.7 |
25.0 |
Operating Profit (before amor. and except.) |
|
18.6 |
19.8 |
16.3 |
17.7 |
20.1 |
|
Amortisation of acquired intangibles |
(0.3) |
(0.8) |
(0.8) |
(0.8) |
(0.8) |
||
Exceptionals |
(0.8) |
(0.9) |
0.0 |
0.0 |
0.0 |
||
Share-based payments |
(1.1) |
(0.9) |
(0.9) |
(0.9) |
(0.9) |
||
Share of post-tax profits in JVs and associates |
3.2 |
2.7 |
2.2 |
2.2 |
2.6 |
||
Reported operating profit |
16.4 |
17.2 |
14.6 |
16.0 |
18.4 |
||
Net Interest |
(0.9) |
(0.9) |
(1.2) |
(1.2) |
(1.2) |
||
Profit Before Tax (norm) |
|
|
17.7 |
18.9 |
15.2 |
16.6 |
18.9 |
Profit Before Tax (reported) |
|
|
15.5 |
16.3 |
13.5 |
14.9 |
17.2 |
Reported tax |
(1.9) |
(2.7) |
(2.5) |
(2.6) |
(3.0) |
||
Profit After Tax (norm) |
15.6 |
15.9 |
12.7 |
13.9 |
15.9 |
||
Profit After Tax (reported) |
13.6 |
13.6 |
11.0 |
12.2 |
14.3 |
||
Minority interests |
(1.8) |
(1.6) |
(1.6) |
(1.6) |
(1.6) |
||
Net income (normalised) |
13.9 |
14.3 |
11.1 |
12.4 |
14.4 |
||
Net income (reported) |
11.9 |
12.0 |
9.4 |
10.7 |
12.7 |
||
Basic average number of shares outstanding (m) |
91.4 |
91.8 |
92.4 |
92.4 |
92.4 |
||
EPS - normalised (p) |
|
|
15.2 |
15.6 |
12.0 |
13.4 |
15.6 |
EPS - normalised fully diluted (p) |
|
|
14.8 |
15.2 |
11.7 |
13.0 |
15.1 |
EPS - basic reported (p) |
|
|
13.0 |
13.1 |
10.2 |
11.5 |
13.7 |
Dividend (p) |
4.50 |
4.75 |
4.75 |
4.90 |
5.10 |
||
EBITDA Margin (%) |
5.7 |
6.1 |
5.7 |
5.9 |
6.0 |
||
Normalised Operating Margin |
4.6 |
4.9 |
4.4 |
4.6 |
4.8 |
||
BALANCE SHEET |
|||||||
Fixed Assets |
|
|
96.5 |
115.6 |
115.7 |
115.7 |
115.8 |
Intangible Assets |
26.5 |
42.2 |
42.6 |
42.9 |
43.3 |
||
Tangible Assets |
38.7 |
41.9 |
41.6 |
41.3 |
41.0 |
||
Investments & other |
31.4 |
31.5 |
31.5 |
31.5 |
31.5 |
||
Current Assets |
|
|
134.7 |
140.7 |
135.8 |
137.9 |
144.5 |
Stocks |
42.4 |
46.3 |
51.5 |
49.3 |
53.4 |
||
Debtors |
67.5 |
65.8 |
64.2 |
66.1 |
72.4 |
||
Cash & cash equivalents |
24.6 |
28.6 |
20.1 |
22.5 |
18.8 |
||
Other |
0.1 |
0.0 |
0.0 |
0.0 |
0.0 |
||
Current Liabilities |
|
|
(99.5) |
(88.8) |
(82.2) |
(81.3) |
(83.6) |
Creditors |
(64.3) |
(63.9) |
(60.3) |
(62.5) |
(67.7) |
||
Tax and social security |
(0.2) |
(1.0) |
(1.0) |
(1.0) |
(1.0) |
||
Short term borrowings |
(35.0) |
(23.9) |
(20.9) |
(17.9) |
(14.9) |
||
Other |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
||
Long Term Liabilities |
|
|
(10.8) |
(36.6) |
(36.6) |
(36.6) |
(36.6) |
Long term borrowings |
(5.0) |
(28.6) |
(28.6) |
(28.6) |
(28.6) |
||
Other long term liabilities |
(5.8) |
(8.0) |
(8.0) |
(8.0) |
(8.0) |
||
Net Assets |
|
|
121.0 |
131.0 |
132.7 |
135.7 |
140.2 |
Minority interests |
(15.7) |
(16.7) |
(18.3) |
(19.9) |
(21.5) |
||
Shareholders' equity |
|
|
105.3 |
114.3 |
114.4 |
115.8 |
118.7 |
CASH FLOW |
|||||||
Op Cash Flow before WC and tax |
23.1 |
24.7 |
21.3 |
22.7 |
25.0 |
||
Working capital |
(4.7) |
(5.0) |
(7.2) |
2.5 |
(5.2) |
||
Exceptional & other |
(3.4) |
(3.7) |
(2.2) |
(2.2) |
(2.6) |
||
Tax |
(2.5) |
(2.3) |
(2.5) |
(2.6) |
(3.0) |
||
Net operating cash flow |
|
|
12.5 |
13.7 |
9.4 |
20.3 |
14.3 |
Investment activities |
(2.8) |
(4.2) |
(5.8) |
(5.8) |
(5.8) |
||
Acquisitions/disposals |
(4.2) |
(10.2) |
(3.5) |
(3.5) |
(3.5) |
||
Net interest |
(1.0) |
(1.1) |
(1.2) |
(1.2) |
(1.2) |
||
Equity financing |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
||
Dividends |
(3.8) |
(4.2) |
(4.4) |
(4.4) |
(4.5) |
||
Other |
(0.6) |
(0.6) |
0.0 |
0.0 |
0.0 |
||
Net Cash Flow |
0.1 |
(6.6) |
(5.5) |
5.4 |
(0.8) |
||
Opening net debt/(cash) |
|
|
14.1 |
15.4 |
23.8 |
29.3 |
23.9 |
FX |
(0.3) |
0.0 |
0.0 |
0.0 |
0.0 |
||
Other non-cash movements |
(1.0) |
(1.9) |
0.0 |
0.0 |
0.0 |
||
Closing net debt/(cash) |
|
|
15.4 |
23.8 |
29.3 |
23.9 |
24.7 |
Source: Company accounts, Edison Investment Research
|
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