Last close As at 05/08/2026
GBP18.88
▲ 108.00 (6.07%)
Market capitalisation
GBP572m
Research: Industrials
The reaction to the latest product approval delays and the strategic review in the body armour business appears to more than discount the likely financial impact and does not reflect solid progress in the core of the group involved in respirators and helmets. While the full ramifications of the delays and the strategic review are yet to be quantified by management, we assume a $40m reduction in FY22e revenue, affecting our FY22e EPS by 19%. We anticipate a strong recovery in FY23 EPS due to loss elimination and growth in the core respiratory and helmets activities.
Written by
Avon Protection |
Sentiment needs restoring to access value |
Further body armour |
Aerospace & defence |
19 November 2021 |
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Avon Protection is a research client of Edison Investment Research Limited |
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The reaction to the latest product approval delays and the strategic review in the body armour business appears to more than discount the likely financial impact and does not reflect solid progress in the core of the group involved in respirators and helmets. While the full ramifications of the delays and the strategic review are yet to be quantified by management, we assume a $40m reduction in FY22e revenue, affecting our FY22e EPS by 19%. We anticipate a strong recovery in FY23 EPS due to loss elimination and growth in the core respiratory and helmets activities.
Year end |
Revenue ($m) |
PBT* |
EPS* |
DPS |
P/E |
Yield |
09/19 |
162.0 |
28.3 |
84.9 |
26.6 |
18.1 |
1.7 |
09/20 |
213.6 |
36.0 |
96.2 |
34.5 |
16.0 |
2.2 |
09/21e |
248.0 |
25.6 |
66.7 |
44.9 |
23.0 |
2.9 |
09/22e |
288.6 |
38.1 |
99.4 |
53.9 |
15.4 |
3.5 |
Note: *PBT and EPS are normalised, excluding amortisation of acquired intangibles, exceptional items and share-based payments.
Further body armour contract deferrals
The new delays to body armour contracts in the US are unwelcome following the previous problems that appeared to be close to resolution. The failure in First Article Testing of the next-generation body armour product for the US Army, known as Vital Torso Protection Enhanced Small Arms Protection Inserts (VTP ESAPI), is similar to the previous issue for the legacy body armour product, which had taken almost a year to resolve. In addition, the delay in final approval for the legacy body armour for the Defense Logistics Agency (DLA) to Q222 defers initial revenue. While underlying trading for FY21 is expected to be in line with October’s management guidance, any asset write-downs arising from the delays have yet to outlined. The FY21 results announcement is deferred from 23 November to early December.
Cash impact should be manageable
In our opinion, the strategic review of the armour business should result in lower future investment levels. Disposal or a structured exit are also possible options, although the cash cost should be limited by mitigating factors such as residual asset values. We note the DLA body armour contract was incremental to the original business case for the Q220 Ceradyne asset purchase, which was centred on military helmets. Contingent consideration of up to $25m was payable had the armour contracts been awarded and executed as planned, of which $6m was incurred to date following initial contract awards. The cash impact in our model is also partly offset by the removal in FY22 of $10m of contingent consideration we had assumed. We cut our FY22 revenue estimate by c $40m (12%), reducing FY22 EBITDA by c $12m before restructuring costs or asset write downs.
Valuation: Core progress heavily discounted
The market value hit of c $315m since the announcement outweighs the likely financial impact of a full withdrawal. The FY22e P/E of 15.4x may be challenged by further cash costs but we expect a strong recovery in FY23. We suspect the progressive growth in the dividend which has been maintained as EPS recovery was in sight may be temporarily interrupted as the armour issues are sorted out.
Revisions to earnings estimates
With management having provided no guidance for FY22, we have adjusted our estimates to reflect our assumption of a reduction of $40m in revenue compared to our prior estimates. We estimate the impact on adjusted FY22 PBT to be around $9m. It should be noted that the contract delays and subsequent strategic review of the business may well lead to further costs of both a non-cash (including asset write downs) and cash (eg restructuring and penalties) nature being incurred. We feel a disposal is likely to prove difficult, although the production capacity could be of interest. The cash costs of withdrawal or closure should be limited due to low US compensation rates and the potential to sell production assets.
While FY21 income statement numbers are unchanged, we have adjusted cash flow estimates modestly to reflect FY21 year-end adjusted net debt cited in the October trading update.
Exhibit 1: Avon Protection revisions to earnings estimates
Year to September ($m) |
2021e |
2022e |
||||
|
Prior |
New |
% change |
Prior |
New |
% change |
Avon Protection |
206.0 |
206.0 |
0.0% |
281.6 |
241.3 |
-14.3% |
Team Wendy |
42.1 |
42.1 |
0.0% |
47.3 |
47.3 |
0.0% |
Total sales |
248.0 |
248.0 |
0.0% |
328.9 |
288.6 |
-12.3% |
|
|
|||||
EBITDA |
43.5 |
43.5 |
0.0% |
71.5 |
59.4 |
-16.9% |
|
|
|||||
Avon Protection |
18.5 |
18.5 |
0.0% |
41.3 |
30.2 |
-26.9% |
Team Wendy |
10.5 |
10.5 |
11.8 |
11.8 |
|
|
Adjusted operating profit |
29.1 |
29.1 |
0.0% |
53.1 |
42.0 |
-20.9% |
|
|
|||||
Adjusted PBT |
25.6 |
25.6 |
0.0% |
46.8 |
38.1 |
-18.6% |
|
|
|||||
EPS - adjusted fully diluted continuing (p) |
66.7 |
66.7 |
0.0% |
122.2 |
99.4 |
-18.6% |
DPS (c) |
44.9 |
44.9 |
0.0% |
53.9 |
53.9 |
0.0% |
Net debt/(cash) |
28.7 |
27.0 |
-5.7% |
14.2 |
20.1 |
41.3% |
Source: Edison Investment Research estimates
Exhibit 2: Financial summary
$m |
2019 |
2020 |
2021e |
2022e |
||
Year end 30 September |
IFRS |
IFRS |
IFRS |
IFRS |
||
PROFIT & LOSS |
||||||
Revenue |
|
|
162.0 |
213.6 |
248.0 |
288.6 |
Cost of Sales |
(100.3) |
(127.8) |
(151.8) |
(176.7) |
||
Gross Profit |
61.7 |
85.8 |
96.2 |
111.9 |
||
EBITDA |
|
|
36.2 |
52.3 |
43.5 |
59.4 |
Operating Profit (before amort. and except.) |
|
|
33.0 |
42.5 |
34.8 |
49.9 |
Intangible Amortisation |
(4.2) |
(4.0) |
(5.8) |
(7.9) |
||
Operating profit (company definition) |
28.8 |
38.5 |
29.1 |
42.0 |
||
Exceptionals |
(17.2) |
(35.3) |
(17.8) |
(9.6) |
||
Other |
(0.6) |
(0.1) |
(1.4) |
(1.4) |
||
Operating Profit |
11.0 |
3.1 |
9.8 |
31.0 |
||
Net Interest |
0.1 |
(2.4) |
(2.0) |
(2.4) |
||
Profit Before Tax (norm) |
|
|
28.3 |
36.0 |
25.6 |
38.1 |
Profit Before Tax (FRS 3) |
|
|
11.1 |
0.6 |
7.8 |
28.5 |
Tax |
1.9 |
1.4 |
(1.5) |
(5.4) |
||
Profit After Tax (norm) |
26.1 |
29.9 |
20.7 |
30.9 |
||
Profit After Tax (FRS 3) |
13.0 |
2.0 |
4.6 |
16.9 |
||
Average Number of Shares Outstanding (m) |
30.5 |
30.6 |
30.6 |
30.6 |
||
EPS - normalised (US cents) |
|
|
85.6 |
97.6 |
67.6 |
100.8 |
EPS - normalised & fully diluted (US cents) |
|
|
84.9 |
96.2 |
66.7 |
99.4 |
EPS - (IFRS) (US cents) |
|
|
42.7 |
6.7 |
20.5 |
75.4 |
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 |
24.5 |
17.5 |
20.6 |
||
Operating Margin (before GW and except.) (%) |
20.4 |
19.9 |
14.0 |
17.3 |
||
BALANCE SHEET |
||||||
Fixed Assets |
|
|
81.2 |
155.3 |
312.4 |
316.4 |
Intangible Assets |
43.5 |
89.4 |
200.6 |
198.2 |
||
Tangible Assets |
26.4 |
38.9 |
72.8 |
76.6 |
||
Right of Use Asset |
11.3 |
27.1 |
38.9 |
41.7 |
||
Investments |
0.0 |
0.0 |
0.0 |
0.0 |
||
Current Assets |
|
|
147.1 |
299.3 |
158.5 |
154.6 |
Stocks |
25.5 |
36.3 |
52.1 |
49.4 |
||
Debtors |
43.6 |
46.0 |
62.5 |
64.0 |
||
Cash |
59.6 |
187.3 |
11.8 |
9.1 |
||
Other |
18.4 |
29.7 |
32.2 |
32.2 |
||
Current Liabilities |
|
|
(43.6) |
(98.2) |
(99.6) |
(98.4) |
Creditors |
(43.5) |
(58.7) |
(60.7) |
(69.2) |
||
Short term borrowings |
(0.1) |
(39.5) |
(38.9) |
(29.1) |
||
Long Term Liabilities |
|
|
(92.0) |
(126.9) |
(141.2) |
(137.2) |
Long term borrowings |
0.0 |
0.0 |
0.0 |
0.0 |
||
Lease Liabilities |
(15.9) |
(29.0) |
(35.6) |
(32.8) |
||
Other long term liabilities |
(76.1) |
(97.8) |
(105.6) |
(104.3) |
||
Net Assets |
|
|
92.6 |
229.5 |
230.1 |
235.5 |
CASH FLOW |
||||||
Operating Cash Flow |
|
|
8.8 |
(3.4) |
5.0 |
61.9 |
Net Interest |
0.0 |
(2.4) |
(2.0) |
(2.4) |
||
Tax |
1.9 |
1.4 |
(1.5) |
(5.4) |
||
Capex |
(7.3) |
(19.9) |
(29.6) |
(31.0) |
||
Acquisitions/disposals |
0.0 |
118.8 |
(144.4) |
0.0 |
||
Financing |
(1.7) |
0.0 |
(1.4) |
(1.4) |
||
Dividends |
(6.9) |
(8.9) |
(11.9) |
(14.8) |
||
Other |
7.4 |
0.8 |
0.0 |
0.0 |
||
Net Cash Flow |
2.3 |
86.3 |
(185.8) |
6.896 |
||
Opening net debt/(cash) |
|
|
(57.3) |
(61.5) |
(147.7) |
27.0 |
HP finance leases initiated |
0.0 |
0.0 |
0.0 |
0.0 |
||
Other |
1.9 |
0.0 |
11.1 |
0.0 |
||
Closing net debt/(cash) |
|
|
(61.5) |
(147.7) |
27.0 |
20.1 |
Total net financial liabilities/(assets) |
|
|
(45.6) |
(118.7) |
62.6 |
53.0 |
Source: Company reports, Edison Investment Research
|
|
Research: Financials
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