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Research: Industrials
Management action to reduce costs and drive commercial actions has enabled Dowlais Group to protect margins despite lower revenues from the weaker automotive market. Hence, management expectations for FY24 are confirmed. This should improve investor confidence and reduce the clear valuation gap.
Dowlais Group |
Resilient performance in a soft automotive market |
Trading update |
Automotive components |
13 November 2024 |
Share price performance
Business description
Analyst
Dowlais Group is a research client of Edison Investment Research Limited |
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Management action to reduce costs and drive commercial actions has enabled Dowlais Group to protect margins despite lower revenues from the weaker automotive market. Hence, management expectations for FY24 are confirmed. This should improve investor confidence and reduce the clear valuation gap.
Year end |
Revenue (£m) |
PBT* |
EPS* |
DPS |
P/E |
Yield |
12/22 |
5,246 |
212 |
(15.3) |
0.0 |
N/A |
N/A |
12/23 |
5,489 |
264 |
13.8 |
4.2 |
3.5 |
8.8 |
12/24e |
4,987 |
207 |
11.0 |
4.2 |
4.4 |
8.8 |
12/25e |
4,929 |
215 |
12.1 |
4.2 |
4.0 |
8.8 |
Note: *PBT and EPS are normalised, excluding amortisation of acquired intangibles, exceptional items and share-based payments.
The group’s overall performance in the 10-month period to the end of October was in line with management expectations. Management remains confident in delivering FY24 guidance of a mid- to high single-digit adjusted revenue decline (ytd -6.1%) and an adjusted operating margin of between 6.0% and 7.0% (ytd 6.1%) in constant currency (ytd -10% FX impact on revenue).
Automotive division sales were down 7.0% (H1: down by 6.3%). Within this, the key Driveline business was down 2.4% (outperforming the 3.0% decline in light vehicle production outside China), the China JV was stable, underperforming the market marginally due to mix and ePowertrain was down 19%, similar to the H1 decline, reflecting continued issues in the electric vehicle (EV) business mix and overall EV market softness. The adjusted operating margin was 6.4% (H1: 6.0%), assisted by the restructuring programme and commercial recoveries. In the Powder Metallurgy division, adjusted revenue declined by 1.9% (H1: up 0.2%), primarily due to an unfavourable customer mix in North America. The operating margin was stable at 9.0% (H1: 9.5%), assisted by continued internal actions. The strategic review of the Powder Metallurgy business is ongoing.
There is no change to our forecasts or valuation, as outlined in our recent review of the group’s strategy and valuation. The group’s FY24 results will be announced on 5 March 2025.
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Research: Industrials
The burden of the UK Municipal businesses has now been cut loose. This leaves a focused waste management and recycling group, for which the European legislative environment is clearly positive. The key is translating this, along with internal investment, into management’s organic growth target of at least 5%. Along with planned margin enhancement from cost actions and higher value-added recyclates, this would drive earnings and value creation.