“Edison’s accessible and high-quality research gives us the opportunity to communicate an independent perspective of Tyman to a wide variety of potential stakeholders.”
Currency in GBP
Last close As at 09/06/2023
GBP1.46
▲ 1.25 (0.86%)
Market capitalisation
GBP138m
Research: Industrials
Carr’s Group has announced the disposal of its Agricultural Supplies division for up to £44.5m cash following the strategic review announced in January 2022. While we expect the disposal to lead to an earnings reduction in the short term, the proceeds will be reinvested in the Speciality Agriculture and Engineering divisions. Management believes this strategy will generate faster growth in the longer term than retaining the Agricultural Supplies activity.
Carr’s Group |
Sale puts focus on higher-margin activities |
Disposal of Agricultural Supplies division |
General industrials |
31 August 2022 |
Share price performance
Business description
Next events
Analyst
Carr's Group is a research client of Edison Investment Research Limited |
|||||||||||||||||||||||||||||||||||||||||||||||
Carr’s Group has announced the disposal of its Agricultural Supplies division for up to £44.5m cash following the strategic review announced in January 2022. While we expect the disposal to lead to an earnings reduction in the short term, the proceeds will be reinvested in the Speciality Agriculture and Engineering divisions. Management believes this strategy will generate faster growth in the longer term than retaining the Agricultural Supplies activity.
Year end |
Revenue (£m) |
PBT* |
EPS* |
DPS |
P/E |
Yield |
08/20** |
395.6 |
15.0 |
12.0 |
4.75 |
10.8 |
3.7 |
08/21 |
417.3 |
16.6 |
13.2 |
5.00 |
9.8 |
3.8 |
08/22e |
474.6 |
17.3 |
12.7 |
5.20 |
10.2 |
4.0 |
08/23e |
138.2 |
10.5 |
8.8 |
5.40 |
14.8 |
4.2 |
Note: FY20, FY21 and FY22e include the Agricultural Supplies division, which has not been treated as a discontinued business. *PBT and EPS are normalised, excluding amortisation of acquired intangibles, exceptional items and share-based payments. **Restated.
Aggregate consideration 6.4x historical EBITDA
The initial consideration payable is £43m, which, after adjustments for debt (less c £19.2m), working capital (plus c £6.5m) and deferred payments (less c £4m), is expected to generate initial cash proceeds of £26.4m. There is also a contingent consideration of up to £1.5m, based on performance, of which up to £0.7m is achievable within one year of completion of the disposal. Management expects that transaction costs will be c £1.9m and the group must also make a £0.4m contribution to the group pension scheme, giving net aggregate cash proceeds of c £29.6m. The sale is to Edward Billington & Son, which already has a significant stake in the division. It is subject to shareholder approval.
Proceeds reinvested in more profitable divisions
Management intends to reinvest up to £10m of the proceeds in Speciality Agriculture manufacturing capacity and up to £4m in working capital to enable the Engineering division to fund potential new larger and longer-term contracts. It also intends to make targeted acquisitions that diversify the activity of the Speciality Agriculture division. The disposal takes the group out of a market where there is overcapacity and little scope for differentiation. It will remove the significant build-up in working capital at the half-year stage and avoid the need to invest an estimated £10m in enhancements to meet more stringent operating regulations.
Valuation: Releasing the underlying value
Our sum-of-the-parts (SOTP) calculation, which compares the two remaining divisions with listed peers offering speciality products to livestock farmers and a sample of UK engineering companies, gives a value of 210.7p/share. Now that there is no excuse for valuing the group using companies engaged in the supply of more commoditised inputs to livestock farmers, the share price should, in our opinion, start to move towards the indicative value, particularly once management has been seen to reinvest the proceeds from the disposal into the Speciality Agriculture division.
Changes to estimates
We make the following changes to our estimates to reflect the impact of the disposal:
■
Receipt of initial consideration of £43m less £1.9m transaction costs, £4m deferred payment and £19.2m adjustment for debt.
■
Elimination of £19.2m debt including £10.0m finance leases, which we model as a reduction in long-term borrowings.
■
Payment of £0.4m into the pension fund, which we show as ‘Investments and other’ in the balance sheet.
■
As per the pro-forma net assets statement in the transaction circular, we reduce goodwill by £5.1m, property, plant and equipment by £7.8m, right of use assets by £9.9m, remove the investment in the associate and cut the interest in joint ventures (JVs) by £2.6m.
■
Reduction of working capital at end FY23 by £25.0m. This is less than the reduction shown in the pro-forma net assets statement, which shows the situation at the end of the first half, which is the peak of the Agricultural Supplies working capital cycle.
■
Elimination of minority interests.
■
Although the disposal will not complete until after an extraordinary general meeting on 19 September 2022, we model it taking effect at the end of FY22, ie at the end of August 2022.
Exhibit 1: Revisions to estimates
£m |
FY21 |
FY22e |
FY23e |
||||
Actual |
Old |
New |
Change |
Old |
New |
Change |
|
Speciality Agriculture revenues |
68.5 |
77.1 |
73.1 |
-5.1% |
76.7 |
74.7 |
-2.6% |
Agricultural Supplies revenues |
297.5 |
345.5 |
355.5 |
2.9% |
339.9 |
0.0 |
-100.0% |
Engineering revenues |
51.3 |
55.0 |
46.0 |
-16.4% |
62.0 |
63.5 |
2.4% |
Group revenues |
417.3 |
477.6 |
474.6 |
-0.6% |
478.6 |
138.2 |
-71.1% |
Speciality Agriculture EBITA including JVs |
9.5 |
7.6 |
7.6 |
0.0% |
8.3 |
8.0 |
-3.6% |
Agricultural Supplies EBITA including JVs |
6.7 |
7.3 |
8.8 |
20.6% |
7.5 |
0.0 |
-100.0% |
Engineering EBITA |
3.9 |
5.6 |
3.8 |
-32.1% |
5.9 |
6.6 |
11.9% |
Central costs |
(2.6) |
(2.2) |
(1.9) |
30.0% |
(2.7) |
(3.0) |
-30.0% |
Group EBITA after deducting share-based payments |
17.6 |
18.3 |
18.3 |
0.0% |
18.9 |
11.5 |
-39.1% |
Normalised PBT after deducting share-based payments |
16.6 |
17.3 |
17.3 |
0.0% |
17.9 |
10.5 |
-41.2% |
Normalised undiluted EPS after deducting share-based payments (p) |
13.2 |
12.7 |
12.7 |
0.0% |
12.9 |
8.8 |
-31.9% |
Dividend per share (p) |
5.0 |
5.2 |
5.2 |
0.0% |
5.4 |
5.4 |
0.0% |
Net debt/(cash) |
25.4 |
33.6 |
33.2 |
-1.1% |
27.3 |
(10.1) |
N/A |
Source: Carr’s Group data, Edison Investment Research
In addition, we make some minor adjustments to reflect the trading update issued earlier in August and reiterated in the circular accompanying the disposal:
■
A reduction in our FY22 and FY23 Speciality Agriculture revenue estimates and FY23 EBITA estimate to reflect the ongoing drought in the United States.
■
An increase in our FY22 Agricultural Supplies revenue estimate to reflect continued high commodity prices and in our FY22 EBITA estimate to acknowledge outperformance versus management expectations as the market fully absorbed sharp rises in commodity prices.
■
A reduction in our FY22 Engineering revenue and EBITA estimates to reflect the impact of supply chain delays and higher costs than management completing a major nuclear defence project. An increase in our divisional FY23 revenues and EBITA estimates to acknowledge the strong order book.
Valuation
SOTP analysis
In Exhibit 2 we compare Carr’s FY22 EV/EBIT and P/E multiples with those of its listed peers offering speciality products to livestock farmers (Speciality Agriculture), companies engaged in the supply of more commoditised inputs to livestock farmers (Agricultural Supply) and a sample of UK engineering companies. At the current share price (130.0p), Carr’s is trading at a relatively modest discount to our sample of companies engaged in agricultural supply and our sample of engineering companies for all metrics. The level of discount is much more pronounced when comparing Carr’s with the mean for the sample of companies offering speciality agricultural products. This suggests that Carr’s current share price does not attribute any uplift in value compared with agricultural suppliers such as Wynnstay for its Speciality Agriculture division.
Exhibit 2: Peer-based multiples
Name |
Market cap (£m) |
EV/EBIT 1FY (x) |
EV/EBIT 2FY (x) |
P/E 1FY (x) |
P/E 2FY (x) |
Speciality Agriculture |
|||||
Anpario |
138.9 |
20.1 |
18.1 |
25.3 |
24.0 |
Benchmark Holdings |
291.6 |
105.7 |
32.1 |
(49.7) |
40.7 |
Mean |
20.1 |
25.1 |
25.3 |
32.3 |
|
Agricultural Supply |
|||||
ForFarmers |
229.8 |
12.9 |
10.3 |
9.1 |
8.2 |
NWF Group |
116.6 |
10.4 |
10.4 |
12.4 |
12.6 |
Ridley Corporation |
378.9 |
10.9 |
10.0 |
16.1 |
14.4 |
Wynnstay Group |
132.1 |
9.1 |
11.7 |
10.0 |
12.8 |
Mean |
10.8 |
10.6 |
11.9 |
13.3 |
|
Engineering |
! |
||||
Avingtrans |
145.2 |
14.9 |
13.2 |
20.6 |
17.8 |
IMI |
3,051.8 |
11.3 |
10.7 |
11.6 |
10.9 |
James Fisher and Sons |
167.0 |
11.9 |
9.8 |
10.3 |
8.0 |
Weir Group |
3,805.6 |
13.8 |
12.5 |
16.0 |
14.2 |
Mean |
13.0 |
11.5 |
14.6 |
12.7 |
|
Carr's Group @ 130p/share |
122.2 |
8.9 |
N/A |
10.3 |
N/A |
Source: Refinitiv, Edison Investment Research. Note: Prices at 30 August 2022. Grey shading indicates exclusion from mean.
We base our SOTP analysis (Exhibit 3) on the EBIT attributable to each remaining division, including the contribution from JVs where appropriate, applying multiples derived from the peer comparison in Exhibit 2. Obviously, this is a relatively small peer group, so does not provide a definitive valuation. For example, Anpario is heavily focussed on the monogastric market (eg pigs and poultry) and Benchmark offers aquaculture biotechnology, so both of our speciality agriculture peers serve markets that are growing more quickly than the ruminant market, which Carr’s addresses. We do not believe it is realistic for the group’s engineering division to command multiples similar to the peers listed above until investors can see that the negative effect of completing the major nuclear project has gone away. Subject to these limitations, our calculation gives an indicative valuation of 210.7p/share.
Exhibit 3: SOTP analysis
FY22 EBIT (£m) |
Multiple (x) |
Value (£m) |
|
Speciality Agriculture |
7.6 |
20.1 |
153.1 |
Agricultural Supply |
0.0 |
10.8 |
0.0 |
Engineering |
3.8 |
13.0 |
49.3 |
Central costs |
(1.9) |
8.0 |
(15.2) |
EV |
187.2 |
||
Net debt at end February 2022 |
(29.9) |
||
Minority interest following disposal |
0.0 |
||
Initial proceeds from disposal (before adjustment for debt and working capital) |
43.0 |
||
Transaction costs |
(1.9) |
||
Pension transfer |
(0.4) |
||
Equity |
198.0 |
||
Number of shares (m) |
94.0 |
||
Indicative value per share (p) |
210.7 |
Source: Refinitiv, Edison Investment Research
Now that there is no excuse for basing the group’s valuation on listed agricultural supply companies such as Wynnstay Group, the share price should, in our opinion, start to move towards the indicative value, particularly once management has been seen to reinvest the proceeds from the disposal into acquisitions that build up the Speciality Agriculture division.
Exhibit 4: Financial summary
£m |
2020 |
2021 |
2022e |
2023e |
||
31-August |
IFRS |
IFRS |
IFRS |
IFRS |
||
INCOME STATEMENT |
restated |
|||||
Revenue |
|
|
395.6 |
417.3 |
474.6 |
138.2 |
Share of post-tax profit from JVs and associate |
0.0 |
0.0 |
0.0 |
0.0 |
||
EBITDA |
|
|
23.4 |
23.9 |
24.8 |
18.0 |
Operating profit (before amort. and excepts.) |
|
16.3 |
17.6 |
18.3 |
11.5 |
|
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 |
10.4 |
||
Net Interest |
(1.3) |
(1.0) |
(1.0) |
(1.0) |
||
Profit Before Tax (norm) |
|
|
15.0 |
16.6 |
17.3 |
10.5 |
Profit Before Tax (reported) |
|
|
10.9 |
12.1 |
16.1 |
9.4 |
Reported tax |
(1.3) |
(2.4) |
(3.5) |
(2.3) |
||
Profit After Tax (norm) |
12.7 |
14.7 |
13.8 |
8.3 |
||
Profit After Tax (reported) |
9.6 |
9.7 |
12.6 |
7.1 |
||
Minority interests |
(1.2) |
(1.9) |
(1.9) |
0.0 |
||
Net income (normalised) |
11.1 |
12.3 |
11.9 |
8.3 |
||
Net income (reported) |
8.4 |
7.7 |
10.7 |
7.1 |
||
Average Number of Shares Outstanding (m) |
92.3 |
93.1 |
93.9 |
94.0 |
||
EPS - normalised (p) |
|
|
12.0 |
13.2 |
12.7 |
8.8 |
EPS - normalised fully diluted (p) |
|
|
11.8 |
13.0 |
12.5 |
8.7 |
EPS - basic reported (p) |
|
|
9.1 |
8.3 |
11.4 |
7.5 |
Dividend (p) |
4.75 |
5.00 |
5.20 |
5.40 |
||
EBITDA Margin (%) |
5.9 |
5.7 |
5.2 |
13.0 |
||
Normalised Operating Margin |
4.1 |
4.2 |
3.8 |
8.3 |
||
BALANCE SHEET |
||||||
Fixed Assets |
|
|
124.4 |
123.4 |
120.3 |
77.5 |
Intangible Assets |
38.4 |
36.7 |
35.5 |
29.1 |
||
Tangible Assets |
53.1 |
53.0 |
51.1 |
31.5 |
||
Investments & other |
32.9 |
33.7 |
33.7 |
16.8 |
||
Current Assets |
|
|
120.4 |
139.1 |
148.0 |
85.6 |
Stocks |
41.0 |
43.2 |
52.0 |
18.8 |
||
Debtors |
59.8 |
68.9 |
79.8 |
29.4 |
||
Cash & cash equivalents |
17.6 |
24.3 |
13.5 |
34.6 |
||
Other |
2.1 |
2.7 |
2.7 |
2.7 |
||
Current Liabilities |
|
|
(70.8) |
(86.1) |
(83.9) |
(23.7) |
Creditors |
(56.6) |
(72.0) |
(72.8) |
(15.6) |
||
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) |
(22.0) |
Long term borrowings including finance leases |
(36.2) |
(35.6) |
(35.6) |
(16.4) |
||
Other long term liabilities |
(6.2) |
(5.6) |
(5.6) |
(5.6) |
||
Net Assets |
|
|
131.6 |
135.2 |
143.2 |
117.3 |
Minority interests |
(16.8) |
(17.2) |
(19.1) |
0.0 |
||
Shareholders' equity |
|
|
114.8 |
118.1 |
124.1 |
117.3 |
CASH FLOW |
||||||
Operating Cash Flow |
23.4 |
23.9 |
24.8 |
18.0 |
||
Working capital |
5.2 |
3.2 |
(18.8) |
26.4 |
||
Exceptional & other |
(7.4) |
(4.9) |
0.0 |
(25.0) |
||
Tax |
(3.1) |
(2.1) |
(3.5) |
(2.3) |
||
Net Operating Cash Flow |
|
|
18.2 |
20.0 |
2.5 |
17.1 |
Investment activities |
(6.2) |
(3.6) |
(4.6) |
(4.6) |
||
Acquisitions/disposals |
(2.7) |
(1.1) |
0.0 |
17.9 |
||
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 |
(0.4) |
||
Net Cash Flow |
5.2 |
9.9 |
(7.8) |
24.1 |
||
Opening net debt/(cash) |
|
|
23.8 |
32.8 |
25.4 |
33.2 |
FX |
0.0 |
0.0 |
0.0 |
0.0 |
||
Other non-cash movements |
(14.3) |
(2.5) |
0.0 |
19.2 |
||
Closing net debt/(cash) |
|
|
32.8 |
25.4 |
33.2 |
(10.1) |
Finance leases |
13.9 |
15.4 |
15.4 |
5.4 |
||
Closing net debt/(cash) excluding finance leases |
18.9 |
10.0 |
17.8 |
(15.6) |
||
Source: Company data, Edison Investment Research. Note: *Including Agricultural Supplies division. **Because there is no pro-forma information on shareholder equity, this is subject to change as information becomes available.
|
|
Research: Healthcare
Kinarus has announced that it has dosed the first patient in its Phase II KINFAST study evaluating lead candidate KIN001 in mild or moderate COVID-19 patients in an outpatient setting. KINFAST is a placebo-controlled study that is designed to recruit c 400 patients across multiple sites in Switzerland and Germany. Interim data are expected after the enrolment of c 140 patients, which we anticipate should help guide KIN001’s future development as a potential treatment for COVID-19.
Get access to the very latest content matched to your personal investment style.
