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Research: Industrials
Carr’s Group has acquired US-based NuVision Engineering for a total cash consideration of up to US$20m (£15.4m). The transaction is immediately earnings enhancing. Importantly, it gives German-based Wälischmiller, which is part of the Carr’s Group Engineering division, greatly enhanced access to the US nuclear market. We raise our FY18 and FY19 estimates and revise our indicative valuation from 158p/share to 163p/share.
Written by
Carr's Group |
Expansion of engineering activity in the US |
Acquisition |
Food & beverages |
8 August 2017 |
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Carr's Group is a research client of Edison Investment Research Limited |
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Carr’s Group has acquired US-based NuVision Engineering for a total cash consideration of up to US$20m (£15.4m). The transaction is immediately earnings enhancing. Importantly, it gives German-based Wälischmiller, which is part of the Carr’s Group Engineering division, greatly enhanced access to the US nuclear market. We raise our FY18 and FY19 estimates and revise our indicative valuation from 158p/share to 163p/share.
Year end |
Revenue (£m) |
PBT* |
EPS* |
DPS |
P/E |
Yield |
08/15 |
331.3 |
14.2 |
10.6 |
3.7 |
13.8 |
2.5 |
08/16 |
314.9 |
14.0 |
10.6 |
3.8** |
13.8 |
2.6 |
08/17e |
332.2 |
11.8 |
8.9 |
3.9 |
16.5 |
2.7 |
08/18e |
342.8 |
15.3 |
11.6 |
4.0 |
12.7 |
2.7 |
Note: *PBT and EPS are normalised, excluding amortisation of acquired intangibles, exceptional items and share-based payments. **Excluding 17.54p special dividend
Acquisition opens up US market
NuVision provides products and field services to clients in the commercial nuclear and fossil power plant industries, including a process for mitigating stress corrosion cracking in nuclear plant pipe welds, engineering design and analysis and radiological decontamination equipment and services. It also supports nuclear decommissioning programmes in the US, UK and Canada through the provision of specialist equipment including its proprietary remote handling arms. Following the transaction, NuVision will start to sell Wälischmiller’s complementary range of remote handling equipment to its established base, thus creating a route to market that overcomes the resistance to purchasing from non-US suppliers that Wälischmiller has experienced in the past. In addition, the acquisition strengthens the services that the group’s Engineering division is able to provide to its customers in the nuclear industry. For example, NuVision is a key supplier on a major nuclear contract that will be delivered by the Manufacturing businesses during FY18.
Acquisition immediately earnings enhancing
For the year ended March 2017, NuVision generated $8.8m revenues and $1.1m profit before tax (adjusted for non-recurring items and amortisation of intangibles). The maximum total consideration payable is $20m, with an initial consideration of $11.5m payable in cash, funded through £6m new term loan facilities and the group’s existing credit facilities. The remaining $8.5m, also payable in cash, is contingent on NuVision’s performance over the 32 months ending March 2020. The upwards revisions to our estimates assume NuVision’s revenues and PBT remain at historic levels and exclude any potential from cross-selling.
Valuation: Modest uplift from acquisition
Our valuation methodology is based on a DCF analysis, as this captures the medium- and long-term prospects for the group. We continue to use a conservative 10.0% WACC and a 1.0% terminal growth rate, which gives a fair value of 163p/share (previously 158p/share).
Revisions to estimates
The changes to our estimates make the following assumptions:
■
No impact on FY17 revenues or profits as the acquisition takes place very close to the year end
■
NuVision’s revenues and profits remain at the levels reported for the year ending March 2017, although the extensive contract and opportunity pipeline indicates potential for growth
■
Although management expects to see material benefit from cross-selling from FY19 onwards, we currently exclude this from our estimates. We will revisit these assumptions when the FY17 results are announced in November.
Exhibit 1: Changes to estimates
Year end August |
FY16 |
FY17e |
FY18e |
FY19e |
||||||
(£m) |
Actual |
Old |
New |
Change |
Old |
New |
Change |
Old |
New |
Change |
Revenues |
314.9 |
332.2 |
332.2 |
0.0% |
336.0 |
342.8 |
2.0% |
340.0 |
346.8 |
2.0% |
Adjusted PBT |
14.0 |
11.8 |
11.8 |
0.0% |
14.7 |
15.3 |
4.1% |
16.0 |
16.6 |
3.7% |
EPS (p) |
10.6 |
8.9 |
8.9 |
0.0% |
11.1 |
11.6 |
4.5% |
11.8 |
12.3 |
4.1% |
Net (cash)/debt |
(8.1) |
8.6 |
17.4 |
103.3% |
2.7 |
10.2 |
283.9% |
(3.4) |
2.9 |
N/A |
Source: Carr’s Group accounts (historics), Edison Investment Research
Exhibit 2: Financial summary
£m |
2015 |
2016 |
2017e |
2018e |
2019e |
||
Year-end Aug |
|||||||
PROFIT & LOSS |
|||||||
Revenue |
|
|
331.3 |
314.9 |
332.2 |
342.8 |
346.8 |
EBITDA |
|
|
16.0 |
16.5 |
14.1 |
19.0 |
20.2 |
Operating Profit (pre amort. of acq intangibles & SBP) |
|
12.6 |
12.7 |
10.2 |
14.1 |
15.3 |
|
Amortisation of acquired intangibles |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
||
Share-based payments |
(0.5) |
0.1 |
(0.5) |
(0.5) |
(0.5) |
||
Exceptionals |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
||
Operating Profit |
12.1 |
12.8 |
9.7 |
13.6 |
14.8 |
||
Net Interest |
(0.7) |
(0.8) |
(0.6) |
(1.0) |
(1.0) |
||
Share of post-tax profits in JVs and associates |
2.3 |
2.1 |
2.2 |
2.2 |
2.3 |
||
Profit Before Tax (norm) |
|
|
14.2 |
14.0 |
11.8 |
15.3 |
16.6 |
Profit Before Tax (FRS 3) |
|
|
13.7 |
14.1 |
11.3 |
14.8 |
16.1 |
Tax |
(3.0) |
(2.9) |
(2.1) |
(3.1) |
(3.9) |
||
Profit After Tax (norm) |
11.2 |
11.1 |
9.7 |
12.2 |
12.7 |
||
Profit After Tax (FRS 3) |
10.7 |
11.2 |
9.2 |
11.7 |
12.2 |
||
Post tax profit (loss) relating to discontinued operations |
3.0 |
2.8 |
0.0 |
0.0 |
0.0 |
||
Minority interest |
(1.7) |
(1.5) |
(1.5) |
(1.5) |
(1.5) |
||
Net income (norm) |
9.5 |
9.5 |
8.2 |
10.6 |
11.2 |
||
Net income (FRS 3) |
12.0 |
12.5 |
7.7 |
10.1 |
10.7 |
||
Average Number of Shares Outstanding (m) |
89.6 |
90.1 |
91.4 |
91.4 |
91.4 |
||
EPS - normalised (p) |
|
|
10.6 |
10.6 |
8.9 |
11.6 |
12.3 |
EPS - normalised fully diluted (p) |
|
|
10.2 |
10.2 |
8.6 |
11.2 |
11.9 |
EPS - FRS 3 (p) |
|
|
13.4 |
13.8 |
8.4 |
11.1 |
11.7 |
Dividend per share (p) |
3.7 |
3.8** |
3.9 |
4.0 |
4.2 |
||
EBITDA Margin (%) |
4.8 |
5.2 |
4.2 |
5.5 |
5.8 |
||
Operating Margin (before GW and except.) (%) |
3.8 |
4.0 |
3.1 |
4.1 |
4.4 |
||
BALANCE SHEET |
|||||||
Fixed Assets |
|
|
86.5 |
63.1 |
81.9 |
80.5 |
78.9 |
Intangible Assets |
11.3 |
11.7 |
16.0 |
15.8 |
15.6 |
||
Tangible Assets and Deferred tax assets |
75.2 |
51.4 |
65.9 |
64.7 |
63.4 |
||
Current Assets |
|
|
120.4 |
139.1 |
108.5 |
114.3 |
120.6 |
Stocks |
35.0 |
33.4 |
33.1 |
33.8 |
34.8 |
||
Debtors |
65.3 |
57.2 |
55.5 |
56.5 |
57.5 |
||
Cash |
20.1 |
48.4 |
19.9 |
24.0 |
28.3 |
||
Current Liabilities |
|
|
(73.8) |
(69.0) |
(66.3) |
(66.1) |
(64.1) |
Creditors including tax, social security and provisions |
(55.0) |
(47.3) |
(47.7) |
(50.5) |
(51.5) |
||
Short term borrowings |
(18.7) |
(21.6) |
(18.6) |
(15.6) |
(12.6) |
||
Long Term Liabilities |
|
|
(34.2) |
(23.1) |
(23.1) |
(23.1) |
(23.1) |
Long term borrowings |
(25.7) |
(18.6) |
(18.6) |
(18.6) |
(18.6) |
||
Retirement benefit obligation |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
||
Other long term liabilities |
(8.5) |
(4.5) |
(4.5) |
(4.5) |
(4.5) |
||
Net Assets |
|
|
99.0 |
110.1 |
100.9 |
105.5 |
112.3 |
Minority interest |
(11.9) |
(13.4) |
(13.4) |
(13.4) |
(13.4) |
||
Shareholders equity |
|
|
87.1 |
96.7 |
87.5 |
92.2 |
98.9 |
CASH FLOW |
|||||||
Operating Cash Flow |
|
|
14.3 |
11.7 |
17.3 |
20.1 |
19.2 |
Net Interest |
(0.5) |
(0.5) |
(0.6) |
(1.0) |
(1.0) |
||
Tax |
(3.9) |
(1.1) |
(2.1) |
(3.1) |
(3.9) |
||
Investment activities |
(4.0) |
(2.9) |
(7.9) |
(3.5) |
(3.5) |
||
Acquisitions/disposals |
(1.7) |
22.7 |
(13.1) |
(1.8) |
0.0 |
||
Equity financing and other financing activities |
(0.3) |
1.0 |
0.0 |
0.0 |
0.0 |
||
Dividends |
(3.1) |
(3.3) |
(19.2) |
(3.6) |
(3.7) |
||
Net Cash Flow |
0.8 |
27.5 |
(25.6) |
7.2 |
7.3 |
||
Opening net debt/(cash) |
|
|
24.6 |
24.4 |
(8.1) |
17.4 |
10.2 |
HP finance leases initiated |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
||
Other |
0.6 |
(5.1) |
0.0 |
0.0 |
0.0 |
||
Closing net debt/(cash) |
|
|
24.4 |
(8.1) |
17.4 |
10.2 |
2.9 |
Source: Carr’s Group accounts, Edison Investment Research. Note: **Excluding 17.54p special dividend.
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