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Research: Industrials
Management set out its strategy when the company listed in April. The trading update confirms that it is on track. Volume and top-line growth, as reported, are expected to provide leverage over the restructured cost base and drive margin expansion (target 11%+ pre central costs), to generate strong earnings growth and demonstrate the quality of the operations.
Dowlais Group |
Positive start to the year |
Q1 trading update |
Automotive components |
23 May 2023 |
Share price performance
Business description
Analyst
Dowlais Group is a research client of Edison Investment Research Limited |
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Management set out its strategy when the company listed in April. The trading update confirms that it is on track. Volume and top-line growth, as reported, are expected to provide leverage over the restructured cost base and drive margin expansion (target 11%+ pre central costs), to generate strong earnings growth and demonstrate the quality of the operations.
Year |
Revenue |
PBT* |
EPS* |
DPS |
P/E |
Yield |
12/22 |
5,246 |
212 |
N/A |
N/A |
N/A |
N/A |
12/23e |
5,487 |
259 |
13.3 |
4.0 |
10.8 |
2.8 |
12/24e |
5,799 |
337 |
17.4 |
5.2 |
8.2 |
3.7 |
12/25e |
5,939 |
427 |
22.4 |
6.7 |
6.4 |
4.7 |
Note: *PBT and EPS are normalised, excluding amortisation of acquired intangibles, exceptional items and share-based payments.
In the four months to end April, Dowlais delivered £1.9bn in revenue, including the Chinese JVs, reflecting 9% growth at constant currency. Adjusted operating margins were similar to FY22 and 200bp up on the softer H122 (H122 operating margins: 5.3%, H222: 7.8%), supporting expectations for margin expansion for the full year. Reflecting this encouraging start to the year, but mindful of the economic uncertainty being seen globally, management expectations for the year are unchanged.
The Automotive division has had a positive start, with 11% growth at constant currency led by Europe and the US (the Chinese market was weak in Q1 before rebounding in April against a 2022 affected by COVID shutdowns). This includes some pricing benefits as inflation pass-throughs were only achieved in H222, but also suggests tracking at least in line with the automotive market. Management reports ‘significant operating margin expansion’ for Automotive, albeit against a weak prior period affected by cost increases which took time to pass on, and slightly above FY22, suggesting positive trajectory on the targeted medium-term 10%+ operating margin. Bookings were positive, as was the mix with the ‘majority’ for BEV platforms.
Revenue for the Powder Metallurgy division was flat in constant currency, with margins at the lower H222 levels (H122: 10.5%, H222: 8.3%). However, management comments on ‘positive momentum’, suggesting that the operational issues which accounted for the softer H222 are being addressed. The division continues to make progress on its battery manufacturing journey.
Our forecasts remain unchanged. Interim results are on 12 September.
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Research: Healthcare
On the heels of Mendus’s recent Q123 results, we take a deep dive into the company’s lead cancer vaccine candidate, vididencel, and the acute myeloid leukaemia (AML) maintenance treatment landscape. On closer inspection of the current AML pipeline and standard of care (SoC), vididencel’s clinical profile and the potential advantages associated with the vaccine’s ‘off-the-shelf’ characteristics may enable more timely and wider access of treatment to patients compared to individualised therapy approaches. Additionally, we view the company’s move to prioritise a combination study of vididencel with AML maintenance SoC Onureg (oral azacitidine) as a sensible strategic decision. Our valuation of Mendus remains unchanged at SEK1.8bn or SEK9.19 per share.