Carr’s Group — Engineering recovery sustained

Carr’s Group (LSE: CARR)

Last close As at 28/02/2024

GBP1.25

5.00 (4.17%)

Market capitalisation

GBP118m

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Research: Industrials

Carr’s Group — Engineering recovery sustained

Carr’s trading update for the first 20 weeks of FY22 notes that the group has made a positive start to the year with overall performance during the period broadly in line with Board expectations. Importantly, the announcement notes that while the Board sees potential for growth in each of the three divisions, there are limited opportunities to exploit inter-divisional synergies, so it has decided to conduct a strategic review. We leave our estimates unchanged and reiterate our indicative valuation of 170p/share.

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Industrials

Carr’s Group

Engineering recovery sustained

AGM statement

General industrials

18 January 2022

Price

153p

Market cap

£143m

Net debt (£m) at 25 December 2021 (excluding finance leases)

27.9

Shares in issue

93.7m

Free float

59.6%

Code

CARR

Primary exchange

LSE

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

(2.2)

0.0

13.1

Rel (local)

(5.8)

(3.5)

2.0

52-week high/low

168p

125p

Business description

Carr’s Group’s Speciality Agriculture and Agricultural Supplies divisions serve farmers in the North of England, South Wales, the Welsh Borders and Scotland, the United States, 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

Interim results

April 2022

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 20 weeks of FY22 notes that the group has made a positive start to the year with overall performance during the period broadly in line with Board expectations. Importantly, the announcement notes that while the Board sees potential for growth in each of the three divisions, there are limited opportunities to exploit inter-divisional synergies, so it has decided to conduct a strategic review. We leave our estimates unchanged and reiterate our indicative valuation of 170p/share.

Year end

Revenue (£m)

PBT*
(£m)

EPS*
(p)

DPS
(p)

P/E
(x)

Yield
(%)

08/20**

395.6

15.0

12.0

4.75

12.8

3.1

08/21

417.3

16.6

13.2

5.00

11.5

3.3

08/22e

422.5

17.3

13.7

5.20

11.2

3.4

08/23e

434.0

17.9

14.0

5.40

10.9

3.5

Note: *PBT and EPS are normalised, excluding amortisation of acquired intangibles, exceptional items and share-based payments. **Restated.

Strong livestock prices supporting feedblock sales

Sales volumes in the Speciality Agriculture division were ahead of the prior year, despite the drought affecting the northern part of the US and the mild weather in the UK because strong livestock prices in both the UK and the US incentivised farmers in both countries to enhance output. However, margins were modestly affected by raw material price increases. Trading in the Agricultural Supplies division was on track, with strong sales of agricultural machinery reflecting high levels of farmer confidence as a result of good livestock and farmgate milk prices. This offset raw material price volatility and reduced demand for fuel related to the mild weather. These trends tally with the assumptions underpinning our estimates, which model flat divisional performance for the Speciality Agriculture division and a modest improvement for the Agricultural Supplies division in FY22.

Engineering trading ahead of prior year period

The December announcement noted that there had been a big jump in orders for fabrication work and good order intake in the precision engineering business during H221. As anticipated, this has resulted in a strong performance in both businesses during the period. The Remote Handling and Robotics performance was also better than the prior year period. As expected, although both the UK and US Engineering Solutions business won major contracts during FY21, contract phasing meant that levels of activity for both businesses were lower than during the prior year period. The Engineering order book remains strong so although divisional performance was substantially ahead of the prior year, despite being behind Board expectations, we leave our divisional and group estimates unchanged.

Valuation: Indicative valuation of 170p/share

Our DCF analysis gives an indicative value of 170p/share, which, like our estimates, has not been changed. We believe that the valuation gap between the current share price and our indicative valuation and should start to close as the strong Engineering order book converts to an improved divisional performance.

Exhibit 1: Financial summary

£m

2020

2021

2022e

2023e

Year end 31 August

IFRS

IFRS

IFRS

IFRS

INCOME STATEMENT

restated

Revenue

 

 

395.6

417.3

422.5

434.0

Share of post-tax profit from JVs and associate

2.6

2.9

2.8

2.9

EBITDA

 

 

23.4

23.9

24.8

25.4

Operating Profit (before amor. and except.)

 

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)

(2.9)

(3.2)

Profit After Tax (norm)

12.7

14.7

14.4

14.7

Profit After Tax (reported)

9.6

9.7

13.2

13.5

Minority interests

(1.2)

(1.9)

(1.6)

(1.6)

Net income (normalised)

11.1

12.3

12.8

13.1

Net income (reported)

8.4

7.7

11.6

11.9

Average number of shares outstanding (m)

92.3

93.1

93.7

93.7

EPS - normalised (p)

 

 

12.0

13.2

13.7

14.0

EPS - normalised fully diluted (p)

 

 

11.8

13.0

13.4

13.8

EPS - basic reported (p)

 

 

9.1

8.3

12.4

12.7

Dividend (p)

4.75

5.00

5.20

5.40

EBITDA Margin (%)

5.9

5.7

5.9

5.9

Normalised Operating Margin

4.1

4.2

4.3

4.4

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

136.9

143.2

Stocks

41.0

43.2

44.0

45.2

Debtors

59.8

68.9

67.1

69.0

Cash & cash equivalents

17.6

24.3

23.1

26.4

Other

2.1

2.7

2.7

2.7

Current Liabilities

 

 

(70.8)

(86.1)

(75.9)

(73.5)

Creditors

(56.6)

(72.0)

(64.8)

(65.4)

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

140.0

145.8

Minority interests

(16.8)

(17.2)

(18.7)

(20.3)

Shareholders' equity

 

 

114.8

118.1

121.3

125.5

CASH FLOW

Op Cash Flow before WC and tax

23.4

23.9

24.8

25.4

Working capital

5.2

3.2

(6.1)

(2.4)

Exceptional & other

(7.4)

(4.9)

(2.8)

(2.9)

Tax

(3.1)

(2.1)

(2.9)

(3.2)

Operating cash flow

 

 

18.2

20.0

13.0

16.8

Investment activities

(6.2)

(3.6)

(4.6)

(4.6)

Acquisitions/disposals

(2.7)

(1.1)

(0.9)

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

1.8

6.4

Opening net debt/(cash) including finance leases

 

23.8

32.8

25.4

23.6

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) including finance leases

 

32.8

25.4

23.6

17.3

Finance leases

13.9

15.4

15.4

15.4

Closing net debt/(cash) excluding finance leases

18.9

10.0

8.2

1.8

Source: Company accounts, Edison Investment Research


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 £60,000 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 2022 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 £60,000 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 2022 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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