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Currency in GBP
Last close As at 26/05/2023
GBP1.45
▲ 2.00 (1.40%)
Market capitalisation
GBP136m
Research: Industrials
Carr’s Group’s trading update for the 22 weeks ending 30 July 2022 notes that the overall trading performance for FY22 is in line with board expectations so we leave our estimates unchanged. The board states that the strategic review announced in December 2021 is nearing completion and it expects to make a separate announcement soon.
Carr’s Group |
Coping well with commodity price rises |
Interim management statement |
General industrials |
8 August 2022 |
Share price performance
Business description
Next event
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 22 weeks ending 30 July 2022 notes that the overall trading performance for FY22 is in line with board expectations so we leave our estimates unchanged. The board states that the strategic review announced in December 2021 is nearing completion and it expects to make a separate announcement soon.
Year end |
Revenue (£m) |
PBT* |
EPS* |
DPS |
P/E |
Yield |
08/20** |
395.6 |
15.0 |
12.0 |
4.75 |
11.0 |
3.6 |
08/21 |
417.3 |
16.6 |
13.2 |
5.00 |
10.0 |
3.8 |
08/22e |
477.6 |
17.3 |
12.7 |
5.20 |
10.4 |
3.9 |
08/23e |
478.6 |
17.9 |
12.9 |
5.40 |
10.2 |
4.1 |
Note: *PBT and EPS are normalised, excluding amortisation of acquired intangibles, exceptional items and share-based payments. **Restated.
Passing on agricultural commodity price increases
Speciality Agriculture margins were notably improved compared with H122. Volumes in the UK and Ireland remained solid, supported by strong farmgate prices. While US volumes continued to be adversely affected by the prolonged drought affecting the northern part of the country, management had anticipated this, so divisional trading was in line with its expectations. The UK Agricultural Supplies business traded ahead of management expectations as the market fully absorbed sharp rises in commodity prices. Dairy feed volumes were stable, supported by higher farmgate milk prices, though volumes of beef and sheep feeds were lower than usual because of an abundance of grass in the area served by the division.
Global supply chain issues affect Engineering
As anticipated in our April update, the Engineering division benefited from a strong order book, particularly for the precision engineering business. Profitability however was lower than management expectations because global shortages of components such as motor controllers meant that the robotics business was not able to recognise milestone payments against some contracts. In addition, the costs associated with completing a major nuclear defence project were higher than management had anticipated.
Valuation: Releasing the value of divisions beneficial
Given the ongoing strategic review, we believe a sum-of-the-parts (SOTP) analysis is appropriate because it shows that stocks engaged purely in engineering activities or providing speciality agricultural inputs command substantially higher multiples than those involved in supplying commoditised agricultural inputs. Our SOTP calculation gives a value of 257.5p/share, which suggests that any potential strategic activity that released the value of individual divisions by splitting up the group would be beneficial for shareholders.
Strategic review and management changes
While the board continues to see potential for growth in each of the three divisions, there are limited opportunities to exploit inter-divisional synergies. Consequently, in December 2021 the board announced that it was carrying out a strategic review. The board expects to complete the process and provide an update ‘shortly’.
In line with the succession plan announced in August 2020, Hugh Pelham became CEO when the previous CEO, Tim Davies, stood down at the group's AGM in January 2021. Hugh left the group in October 2021 and Chairman Peter Page moved from a non-executive to an executive role while the group looked for a new CEO. The group has now announced that Peter is to stay in an executive role, becoming the new CEO. Prior to becoming non-executive chairman in January 2020, Peter was chief executive officer of Devro, which manufactures collagen casings for the food industry. Before that he worked for poultry breeder Aviagen and as an executive director of Adnams, a regional brewer. CFO Neil Austin, who has been in this post since May 2013, has announced his decision to step down from the board to take up a new role as CFO of the privately owned Westmorland Family group of businesses. He will remain in his current position until Carr’s Group’s AGM in January 2023.
Valuation
SOTP analysis
Exhibit 1: Peer-based multiples
Name |
Market cap (£m) |
EV/EBIT 1FY (x) |
EV/EBIT 2FY (x) |
P/E 1FY (x) |
P/E 2FY (x) |
Speciality Agriculture |
! |
||||
Anpario |
137.9 |
19.9 |
17.9 |
25.1 |
23.8 |
Benchmark Holdings |
285.0 |
185.2 |
32.3 |
(76.9) |
29.9 |
Mean |
19.9 |
25.1 |
25.1 |
26.8 |
|
Agricultural Supply |
|||||
ForFarmers |
243.2 |
11.8 |
8.9 |
14.3 |
8.1 |
NWF Group |
110.2 |
9.9 |
9.9 |
11.9 |
12.0 |
Ridley Corporation |
309.8 |
10.8 |
9.6 |
15.8 |
13.9 |
Wynnstay Group |
124.6 |
8.7 |
11.0 |
10.3 |
13.2 |
Mean |
10.3 |
9.8 |
13.1 |
13.0 |
|
Engineering |
|||||
Avingtrans |
148.7 |
15.3 |
13.5 |
21.0 |
18.6 |
IMI |
3,351.3 |
12.3 |
11.4 |
12.7 |
12.0 |
James Fisher |
167.7 |
15.2 |
13.7 |
22.2 |
20.2 |
Weir Group |
4,226.8 |
15.0 |
13.6 |
17.9 |
15.8 |
Mean |
14.5 |
13.0 |
18.5 |
16.6 |
|
Carr's Group PLC @ 131.75p/share |
123.8 |
9.0 |
8.7 |
10.4 |
10.2 |
Source: Refinitiv, Edison Investment Research. Note: Prices as at 4 August 2022. Grey shading indicates exclusion from mean.
In Exhibit 1 we compare Carr’s prospective EV/EBITDA and P/E multiples with those of its listed peers offering speciality products to livestock farmers (Speciality Agriculture), companies engaged in the supply of more commoditised inputs to livestock farmers (Agricultural Supply) and a sample of UK engineering companies. At the current share price (131.75p), Carr’s is trading at a relatively modest discount to our sample of companies engaged in agricultural supply and our sample of engineering companies on all metrics. The level of discount is much more pronounced when comparing Carr’s with the mean for the sample of companies offering speciality agricultural products. This suggests that Carr’s current share price does not attribute any uplift in value compared with agricultural suppliers such as ForFarmers for its Speciality Agriculture division.
We base our SOTP analysis (Exhibit 2) on the EBIT attributable to each division, including the contribution from the associate and JVs where appropriate, applying multiples derived from the peer comparison in Exhibit 1. Obviously, this is a relatively small peer group and the calculation is sensitive to the multiples used. Despite these limitations, the exercise illustrates the value in the individual divisions. Our calculation produces an indicative group value of 257.5p/share, suggesting that any strategic activity that released the value of individual divisions would be beneficial for shareholders.
Exhibit 2: SOTP analysis
FY22 EBIT (£m) |
Multiple (x) |
Value (£m) |
|
Speciality Agriculture |
7.6 |
19.9 |
151.6 |
Agricultural Supply |
7.3 |
10.3 |
74.9 |
Engineering |
5.6 |
14.5 |
80.9 |
Central costs |
(2.2) |
8.0 |
(17.6) |
EV |
289.8 |
||
Net debt at end February 2022* |
(29.9) |
||
Minorities at end February 2022 |
(18.0) |
||
Equity value |
242.0 |
||
Number of shares (m) |
94.0 |
||
Indicative value per share (p) |
257.5 |
Source: Edison Investment Research, Refinitiv. Note: *Excluding finance leases. Prices as at 4 August 2022.
Exhibit 3: Financial summary
£m |
2020 |
2021 |
2022e |
2023e |
||
Year end 31 August |
IFRS |
IFRS |
IFRS |
IFRS |
||
INCOME STATEMENT |
restated |
|||||
Revenue |
|
|
395.6 |
417.3 |
477.6 |
478.6 |
Share of post-tax profit from JVs and associate |
0.0 |
0.0 |
0.0 |
0.0 |
||
EBITDA |
|
|
23.4 |
23.9 |
24.8 |
25.4 |
Operating profit (before amort. and excepts.) |
|
16.3 |
17.6 |
18.3 |
18.9 |
|
Amortisation of acquired intangibles |
(1.4) |
(1.2) |
(1.2) |
(1.2) |
||
Exceptionals |
(2.6) |
(3.4) |
0.0 |
0.0 |
||
Reported operating profit |
12.3 |
13.0 |
17.1 |
17.8 |
||
Net Interest |
(1.3) |
(1.0) |
(1.0) |
(1.0) |
||
Profit Before Tax (norm) |
|
|
15.0 |
16.6 |
17.3 |
17.9 |
Profit Before Tax (reported) |
|
|
10.9 |
12.1 |
16.1 |
16.8 |
Reported tax |
(1.3) |
(2.4) |
(3.5) |
(3.9) |
||
Profit After Tax (norm) |
12.7 |
14.7 |
13.8 |
14.1 |
||
Profit After Tax (reported) |
9.6 |
9.7 |
12.6 |
12.9 |
||
Minority interests |
(1.2) |
(1.9) |
(1.9) |
(1.9) |
||
Net income (normalised) |
11.1 |
12.3 |
11.9 |
12.1 |
||
Net income (reported) |
8.4 |
7.7 |
10.7 |
11.0 |
||
Average Number of Shares Outstanding (m) |
92.3 |
93.1 |
93.9 |
94.0 |
||
EPS - normalised (p) |
|
|
12.0 |
13.2 |
12.7 |
12.9 |
EPS - normalised fully diluted (p) |
|
|
11.8 |
13.0 |
12.5 |
12.8 |
EPS - basic reported (p) |
|
|
9.1 |
8.3 |
11.4 |
11.7 |
Dividend (p) |
4.75 |
5.00 |
5.20 |
5.40 |
||
EBITDA Margin (%) |
5.9 |
5.7 |
5.2 |
5.3 |
||
Normalised Operating Margin |
4.1 |
4.2 |
3.8 |
4.0 |
||
BALANCE SHEET |
||||||
Fixed Assets |
|
|
124.4 |
123.4 |
120.3 |
117.2 |
Intangible Assets |
38.4 |
36.7 |
35.5 |
34.3 |
||
Tangible Assets |
53.1 |
53.0 |
51.1 |
49.3 |
||
Investments & other |
32.9 |
33.7 |
33.7 |
33.7 |
||
Current Assets |
|
|
120.4 |
139.1 |
148.4 |
155.4 |
Stocks |
41.0 |
43.2 |
52.3 |
55.3 |
||
Debtors |
59.8 |
68.9 |
80.3 |
80.9 |
||
Cash & cash equivalents |
17.6 |
24.3 |
13.1 |
16.4 |
||
Other |
2.1 |
2.7 |
2.7 |
2.7 |
||
Current Liabilities |
|
|
(70.8) |
(86.1) |
(84.4) |
(80.2) |
Creditors |
(56.6) |
(72.0) |
(73.3) |
(72.1) |
||
Tax and social security |
(0.0) |
(0.0) |
(0.0) |
(0.0) |
||
Short term borrowings including finance leases |
(14.2) |
(14.1) |
(11.1) |
(8.1) |
||
Other |
0.0 |
0.0 |
0.0 |
0.0 |
||
Long Term Liabilities |
|
|
(42.4) |
(41.2) |
(41.2) |
(41.2) |
Long term borrowings including finance leases |
(36.2) |
(35.6) |
(35.6) |
(35.6) |
||
Other long term liabilities |
(6.2) |
(5.6) |
(5.6) |
(5.6) |
||
Net Assets |
|
|
131.6 |
135.2 |
143.2 |
151.2 |
Minority interests |
(16.8) |
(17.2) |
(19.1) |
(21.0) |
||
Shareholders' equity |
|
|
114.8 |
118.1 |
124.1 |
130.1 |
CASH FLOW |
||||||
Operating Cash Flow |
23.4 |
23.9 |
24.8 |
25.4 |
||
Working capital |
5.2 |
3.2 |
(19.2) |
(4.8) |
||
Exceptional & other |
(7.4) |
(4.9) |
0.0 |
0.0 |
||
Tax |
(3.1) |
(2.1) |
(3.5) |
(3.9) |
||
Net Operating Cash Flow |
|
|
18.2 |
20.0 |
2.1 |
16.8 |
Investment activities |
(6.2) |
(3.6) |
(4.6) |
(4.6) |
||
Acquisitions/disposals |
(2.7) |
(1.1) |
0.0 |
0.0 |
||
Net interest |
(1.5) |
(1.1) |
(1.0) |
(1.0) |
||
Equity financing |
0.0 |
0.9 |
0.0 |
0.0 |
||
Dividends |
(3.3) |
(5.5) |
(4.7) |
(4.9) |
||
Other |
0.8 |
0.3 |
0.0 |
0.0 |
||
Net Cash Flow |
5.2 |
9.9 |
(8.2) |
6.3 |
||
Opening net debt/(cash) |
|
|
23.8 |
32.8 |
25.4 |
33.6 |
FX |
0.0 |
0.0 |
0.0 |
0.0 |
||
Other non-cash movements |
(14.3) |
(2.5) |
0.0 |
0.0 |
||
Closing net debt/(cash) |
|
|
32.8 |
25.4 |
33.6 |
27.3 |
Finance leases |
13.9 |
15.4 |
15.4 |
15.4 |
||
Closing net debt/(cash) excluding finance leases |
18.9 |
10.0 |
18.1 |
11.8 |
||
Source: Company data, Edison Investment Research
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|
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