Last close As at 05/08/2026
GBP18.88
▲ 108.00 (6.07%)
Market capitalisation
GBP572m
This morning Avon released its post-close trading statement for H121, which shows strong top-line growth and order intake. Trading continued to show progress, in line with management expectations for Q221, continuing the Q121 performance noted at the AGM. Management expects to meet FY21 consensus expectations, with growing momentum during H221 as new contract volumes build. We trim our above-consensus FY21 EPS estimate by 4% and maintain FY22, which are reported in US$ from the current year. Avon’s shares trade at a healthy premium to UK defence peers, warranted by top-line growth, high returns and strong cash flows.
Written by
Avon Rubber |
Maintaining full-year consensus expectations |
H121 trading update |
Aerospace & defence |
9 April 2021 |
Share price performance
Business description
Next events
Analyst
Avon Rubber is a research client of Edison Investment Research Limited |
|||||||||||||||||||||||||||||||||||||||||||||
This morning Avon released its post-close trading statement for H121, which shows strong top-line growth and order intake. Trading continued to show progress, in line with management expectations for Q221, continuing the Q121 performance noted at the AGM. Management expects to meet FY21 consensus expectations, with growing momentum during H221 as new contract volumes build. We trim our above-consensus FY21 EPS estimate by 4% and maintain FY22, which are reported in US$ from the current year. Avon’s shares trade at a healthy premium to UK defence peers, warranted by top-line growth, high returns and strong cash flows.
Year end |
Revenue ($m) |
PBT* |
EPS* |
DPS |
P/E |
Yield |
09/19 |
162.0 |
28.3 |
84.9 |
26.6 |
55.4 |
0.6 |
09/20 |
213.6 |
36.0 |
96.2 |
34.5 |
48.9 |
0.7 |
09/21e |
284.9 |
48.1 |
125.6 |
44.9 |
37.4 |
1.0 |
09/22e |
362.0 |
69.4 |
181.1 |
53.9 |
26.0 |
1.2 |
Note: *PBT and EPS are normalised, excluding amortisation of acquired intangibles, exceptional items and share-based payments.
H121 expected to deliver strong growth
H121 revenue is expected to be $122m (H120: $87m). Team Wendy made an initial contribution of $20m and Ceradyne Helmets and Armor assets delivered a full contribution (consolidated from 2 January 2020), with good progress in respiratory products. Overall Military revenues were up 16% while First Responder revenues increased 19%. The H121 order book for the group was $155m compared to an opening order book of $102m, including Team Wendy, and reflected strong order intake across the portfolio of critical personal protection systems for the Military and First Responders. Period-end net debt (excluding leases) was $13m as the weighting of revenues to H221 and increased inventories to manage longer material lead times reduced H121 cash conversion. Management still expects FY21 cash conversion to be in line with guidance for over 90%.
Stronger second-half momentum into FY22
Military orders received were up a strong 30% on H120 and included $38m from NATO, $17m under the M69 contract and $19m under the extended sole source low-rate initial production for the first-generation Integrated Head Protection System helmet. First Responders’ order intake also grew strongly at 29%. Management remains positive about the order pipeline and market conditions as well as wider market opportunities. All this helps underpin H221 revenue expectations. The group also continues to progress the deferred body armour contract and appears confident that shipments should commence in H122.
Valuation: High returns and growth warrant premium
Following the derating after the December trading update, Avon trades on a healthy P/E premium to its UK defence peers warranted by strong sales with improving returns delivering strong cash flow growth. As management restores organic growth the rating may expand, especially if the enhancing acquisitions deliver to plan.
Exhibit 1: Financial summary
$m |
2019 |
2020 |
2021e |
2022e |
||
Year end 30 September |
IFRS |
IFRS |
IFRS |
IFRS |
||
PROFIT & LOSS |
||||||
Revenue |
|
|
162.0 |
213.6 |
284.9 |
362.0 |
Cost of Sales |
(100.3) |
(127.8) |
(174.4) |
(221.6) |
||
Gross Profit |
61.7 |
85.8 |
110.5 |
140.4 |
||
EBITDA |
|
|
36.2 |
49.0 |
66.3 |
88.2 |
Operating Profit (before amort. and except.) |
|
|
33.0 |
42.5 |
58.4 |
79.2 |
Intangible Amortisation |
(4.2) |
(4.0) |
(7.5) |
(5.6) |
||
Operating profit (company definition) |
28.8 |
38.5 |
51.0 |
73.6 |
||
Exceptionals |
(17.2) |
(35.3) |
(16.6) |
(8.9) |
||
Other |
(0.6) |
(0.1) |
(2.2) |
(2.2) |
||
Operating Profit |
11.0 |
3.1 |
32.1 |
62.5 |
||
Net Interest |
0.1 |
(2.4) |
(0.6) |
(2.0) |
||
Profit Before Tax (norm) |
|
|
28.3 |
36.0 |
48.1 |
69.4 |
Profit Before Tax (FRS 3) |
|
|
11.1 |
0.6 |
31.6 |
60.5 |
Tax |
1.9 |
1.4 |
(6.0) |
(11.5) |
||
Profit After Tax (norm) |
26.1 |
29.9 |
39.0 |
56.2 |
||
Profit After Tax (FRS 3) |
13.0 |
2.0 |
20.1 |
38.4 |
||
Average Number of Shares Outstanding (m) |
30.5 |
30.6 |
30.6 |
30.6 |
||
EPS - normalised (US cents) |
|
|
85.6 |
97.6 |
127.4 |
183.6 |
EPS - normalised & fully diluted (US cents) |
|
|
84.9 |
96.2 |
125.6 |
181.1 |
EPS - (IFRS) (US cents) |
|
|
42.7 |
6.7 |
83.5 |
160.0 |
Dividend per share (US cents) |
26.6 |
34.5 |
44.9 |
53.9 |
||
Gross Margin (%) |
38.1 |
40.2 |
38.8 |
38.8 |
||
EBITDA Margin (%) |
22.4 |
22.9 |
23.3 |
24.4 |
||
Operating Margin (before GW and except.) (%) |
20.4 |
19.9 |
20.5 |
21.9 |
||
BALANCE SHEET |
||||||
Fixed Assets |
|
|
81.2 |
155.3 |
277.8 |
280.8 |
Intangible Assets |
43.5 |
89.4 |
139.3 |
142.3 |
||
Tangible Assets |
28.2 |
40.1 |
70.6 |
72.4 |
||
Right of Use Asset |
9.5 |
25.8 |
29.6 |
27.0 |
||
Investments |
0.0 |
0.0 |
0.0 |
0.0 |
||
Current Assets |
|
|
147.1 |
299.3 |
237.5 |
235.3 |
Stocks |
25.5 |
36.3 |
51.3 |
56.5 |
||
Debtors |
43.6 |
46.0 |
62.7 |
74.5 |
||
Cash |
59.6 |
187.3 |
59.3 |
85.0 |
||
Other |
18.4 |
29.7 |
29.7 |
29.7 |
||
Current Liabilities |
|
|
(43.6) |
(98.2) |
(153.5) |
(126.0) |
Creditors |
(43.5) |
(58.7) |
(71.2) |
(89.9) |
||
Short term borrowings |
(0.1) |
(39.5) |
0.0 |
0.0 |
||
Long Term Liabilities |
|
|
(92.0) |
(126.9) |
(130.5) |
(127.6) |
Long term borrowings |
0.0 |
0.0 |
0.0 |
0.0 |
||
Lease Liabilities |
(15.9) |
(29.0) |
(32.9) |
(30.3) |
||
Other long term liabilities |
(76.1) |
(97.8) |
(97.6) |
(97.3) |
||
Net Assets |
|
|
92.6 |
229.5 |
231.3 |
262.5 |
CASH FLOW |
||||||
Operating Cash Flow |
|
|
8.8 |
(3.4) |
36.1 |
83.0 |
Net Interest |
0.0 |
(2.4) |
(0.6) |
(2.0) |
||
Tax |
1.9 |
1.4 |
(6.0) |
(11.5) |
||
Capex |
(7.3) |
(19.9) |
(18.6) |
(17.4) |
||
Acquisitions/disposals |
0.0 |
118.8 |
(134.4) |
(9.2) |
||
Financing |
(1.7) |
0.0 |
(1.3) |
(1.3) |
||
Dividends |
(6.9) |
(8.9) |
(11.6) |
(14.7) |
||
Other |
7.4 |
0.8 |
0.0 |
0.0 |
||
Net Cash Flow |
2.3 |
86.3 |
(136.4) |
27.1 |
||
Opening net debt/(cash) |
|
|
(57.3) |
(61.5) |
(147.8) |
(11.4) |
HP finance leases initiated |
0.0 |
0.0 |
0.0 |
0.0 |
||
Other |
1.9 |
0.0 |
0.0 |
0.0 |
||
Closing net debt/(cash) |
|
|
(61.5) |
(147.8) |
(11.4) |
(38.5) |
Total net financial liabilities /(assets) |
|
|
(45.6) |
(118.7) |
21.5 |
(8.1) |
Source: Company reports, Edison Investment Research
|
|
Research: Financials
Secure Trust Bank (STB) reported FY20 PBT of £20.1m versus our estimate of £13m. The beat was mostly driven by lower than expected impairments (2.3% vs 2.7%). PBT was about 50% down on FY19, but the ROE of 6.2% shows resilience given the pandemic. STB’s Q3 update and pre-close statement had already indicated that asset quality was better than expected and business volumes were holding up relatively well. The latest lockdown is affecting H121, but we estimate loan growth of 5% and 15% for FY21 and FY22. We see impairment dropping to 1.5% by 2022, which should help drive ROE to 11.1%. The share price has rebounded but STB still trades on an FY21 P/BV of 0.79x, despite a strong track record of value creating returns (ROE above COE). Its solid good capital base (CET1 14.2) supports management’s strategy of seeking growth opportunities both organically and through possible M&A. We have increased our fair value to 2,163p/share (from 1,756p) mainly due to rolling forward one year.