Carr’s Group — Serving defensive markets

Carr’s Group (LSE: CARR)

Last close As at 20/04/2024

GBP1.25

10.50 (9.17%)

Market capitalisation

GBP118m

More on this equity

Research: Industrials

Carr’s Group — Serving defensive markets

Both of Carr’s Group’s divisions have continued to operate throughout the coronavirus lockdowns as they serve key markets. While adjusted PBT was 17% lower year-on-year during FY20 because of an unseasonably mild winter in the UK and delays in engineering contracts, a pick-up in US cattle prices at the year-end helped deliver a full-year result ahead of our estimates, which were revised down in March.

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Written by

Industrials

Carr’s Group

Serving defensive markets

FY20 results

General industrials

23 November 2020

Price

121.75p

Market cap

£113m

Net debt (£m) at 31 August 2020 (excluding £13.9m in leases)

18.9

Shares in issue

92.4m

Free float

58.7%

Code

CARR

Primary exchange

LSE

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

27.8

(2.7)

(16.7)

Rel (local)

18.2

(9.0)

(6.7)

52-week high/low

160p

88p

Business description

Carr’s Agriculture division serves farmers in the North of England, South Wales, the Welsh Borders and Scotland, the US, Germany, Canada and New Zealand. The Engineering division offers remote handling equipment and fabrications to the global nuclear and oil and gas industries

Next events

AGM

12 January 2021

Analyst

Anne Margaret Crow

+44 (0)20 3077 5700

Carr’s Group is a research client of Edison Investment Research Limited

Both of Carr’s Group’s divisions have continued to operate throughout the coronavirus lockdowns as they serve key markets. While adjusted PBT was 17% lower year-on-year during FY20 because of an unseasonably mild winter in the UK and delays in engineering contracts, a pick-up in US cattle prices at the year-end helped deliver a full-year result ahead of our estimates, which were revised down in March.

Year end

Revenue (£m)

PBT*
(£m)

EPS*
(p)

DPS
(p)

P/E
(x)

Yield
(%)

08/19

403.9

18.0

14.6

4.75

8.3

3.9

08/20

395.6

14.9

11.9

4.75

10.2

3.9

08/21e

420.0

15.4

12.2

4.90

10.0

4.0

08/22e

435.0

16.5

13.1

5.10

9.3

4.2

Note: *PBT and EPS are normalised, excluding amortisation of acquired intangibles, exceptional items and share-based payments.

Agriculture affected by unseasonal weather

Group FY20 revenues declined by 2% year-on-year to £395.6m, primarily reflecting lower volumes of animal health supplements and feed associated with the unusually mild winter. Pre-exceptional PBT (excluding amortisation of acquired intangibles and non-recurring items) decreased by 17% to £14.9m, ahead of our £14.3m estimate. The year-on-year drop was because of the negative impact of lower volumes in the Agriculture division and delays to contracts in the Engineering division. Management is maintaining the full-year dividend at FY19 levels of 4.75p/share.

Demand resilient to impact of COVID-19

The Agriculture division’s manufacturing sites in North America, Germany and the UK, as well as its UK retail network which is a vital part of the food supply chain, have remained operational during both lockdowns. Farm animals still need to be fed and consumers still want meat and dairy produce. The main engineering activities in North America, the UK and Germany have also continued to operate, as the division works on long-term contracts connected to projects of national importance, particularly in the nuclear decommissioning and nuclear defence sectors. However, it is not clear when and to what extent the oil price will recover, stimulating investment from the oil and gas industry, which was depressed during H220. We reduce our FY21 group PBT estimate by 2% for IFRS 16 lease payments and cut our FY22 PBT estimate by 9% to reflect growth from a lower base.

Valuation: Indicative valuation of 170p/share

Our DCF analysis gives an indicative value of 170p/share (unchanged). This approach ascribes a value to the group that looks beyond the uncertainty caused by Brexit, as well as the short-term order delays that are specific to the group’s Engineering division. Confirmation that Carr’s diversified business model can address issues caused by Brexit uncertainty plus news of the major delayed engineering order should, in our view, help move the share price back towards our indicative valuation.

Divisional analysis

Exhibit 1: Divisional analysis

Year end 31 August (£m)

FY19

FY20

FY21e

FY22e

FY23e

Agriculture

357.4

342.6

365.0

375.0

390.0

Engineering

46.5

53.0

55.0

60.0

65.0

Group revenues

403.9

395.6

420.0

435.0

455.0

Agriculture adjusted EBIT excluding JVs and associate*

12.0

10.8

10.8

11.0

11.3

Share of post-tax results of associates and joint ventures

2.7

2.6

2.6

2.7

2.8

Engineering adjusted EBIT*

5.9

3.8

4.5

5.2

5.9

Central costs*

(1.6)

(1.0)

(1.0)

(1.0)

(1.1)

Total adjusted EBIT*

18.9

16.2

16.9

17.9

18.9

Reported EBIT

17.2

13.8

15.6

16.6

17.6

Source: Company data, Edison Investment Research. Note: *After deducting share-based payments and before deducting amortisation of acquired intangible assets and non-recurring items.

Agriculture (£343m revenues, £13.4m adjusted EBIT including JVs)

Recovery in H220 after unseasonal weather in H120

Divisional revenues declined by 4% year-on-year to £342.6m, reflecting lower volumes of feed and feed blocks during the first half. Divisional EBIT (adjusted for amortisation of acquired intangible assets and non-recurring items but not share-based payments) fell by 9% to £13.4m. This was substantially ahead of our £11.4m estimate because of a pick-up in US feed block demand at the end of the year and growth in UK machinery sales supported by government loans.

Compared with H119, demand for animal feed in the UK during H120 was depressed by the unseasonably mild weather, which resulted in plentiful supplies of forage. Moreover, H119 followed a prolonged period of drought, so while farmers typically started H119 with very low stores of forage, levels were substantially above normal at the start of H120. A significant pick-up in demand for meat and dairy products during H220 led to a recovery in feed demand, resulting in total compound feed volumes declining by 7% year-on-year for FY20 as a whole, in line with the market. The mild weather in H120 resulted in a reduction in volumes of fuel sold. However, this was offset during H220 by customers stocking up on heating oil when commodity prices were low at the start of the coronavirus pandemic, and a busy spring period on farms once the excessively wet period over the winter was over and it was possible to work the land again. An improvement in UK farmer confidence generally compared with the corresponding period a year previously when farmers were very concerned about an impending no-deal Brexit at the end of March 2019, together with government ‘bounce-back’ loan schemes supporting farm investment, resulted in a 19% jump in machinery revenues. Like-for-like sales in the retail business rose by 2%. The group’s network of UK retail outlets, which provide a critical role in the UK’s food supply chain, remained operational throughout the pandemic, as did all of the division’s UK and overseas manufacturing facilities.

The combination of unseasonal weather and lower cattle and lamb prices resulted in lower sales in the UK of both feed blocks and Animax supplements during the first half because farmers were not pushing to maximise outputs. This reversed in the second half as livestock prices improved, resulting in 5% volume growth for the year as a whole. Similarly, feed block volumes in the US were depressed in H120 because of a delayed start to winter feeding, then recovered in the second half as livestock prices recovered towards the year end, resulting in a 0.5% increase in volumes for the year as a whole in the region. Feed block sales were slightly down in Germany during the first half because of the mild winter there and finished with a 4% volume decline for the year as a whole.

Outlook

Cattle prices in the US began to rise towards the end of FY20, boosting demand for feed blocks in the region. There is also potential for divisional growth from sales of feed blocks from the South Dakota plant into the Canadian beef market now that Carr’s has completed a two-year process to gain approval for the product in the country. However, we are taking a cautious stance regarding divisional profit in FY21 to reflect continued uncertainty in the UK agriculture sector relating to Brexit, especially for sheep farmers. We therefore now model FY21 divisional EBITA at FY20 levels, ie £13.4m. This is slightly higher than our previous estimate (£12.8m) because of the pick-up in US feed block sales at the end of the year. Given the significant uncertainty in agricultural markets, management has begun to implement longer-term cost reduction measures, for example closing four sites. This programme refines management’s strategy of growing the division by focusing on added-value activities such as the manufacture of feed blocks and supplements, and by making bolt-on acquisitions. It is possible that Brexit may encourage the UK government to support its farmers in the interests of ensuring shortening food supply chains and improving food security. This would be of benefit to the division.

Engineering (£53.0m revenues, £3.8m adjusted EBIT)

Coronavirus exacerbates project delays

Divisional revenues increased by £6.5m year-on-year to £53.0m. NW Total, which was acquired in June 2019, generated revenues of £11.7m compared with £1.9m in FY19. Divisional adjusted EBIT fell from £5.9m to £3.8m. This was substantially lower than our estimates because of delays in receiving and executing contracts.

The UK Service and Manufacturing business performed well during the first half. However, the second half was adversely affected by significantly reduced investment by the oil and gas sector caused by the low oil price, which resulted in delays in executing a major project. As flagged early in the year, the Global Robotics business experienced delays to contract awards, primarily on a major order from Japan for remote handling equipment related to the Fukushima clean-up activity and restrictions on exports to China. The situation was made worse during the second half by travel restrictions related to the coronavirus pandemic, which made it difficult to progress potential sales or install equipment on customer sites. As anticipated, because of the long timescales of projects, the Global Technical Services business experienced lower levels of activity during the first half because of contract phasing on key Mechanical Stress Improvement Process (MSIP) projects. This was followed by a pick-up in activity in the second half.

Outlook

We model a £0.7m increase in divisional EBITA during FY21 to £4.5m. This growth is based on the Global Technical Services order book, which includes two significant MSIP contracts won during FY19 that will primarily benefit FY21 when the manufacturing phase will take place. It also includes a $6.2m MSIP contract received in FY20 from a customer in Switzerland, which will primarily benefit FY21 and FY22. NW Total’s order book remains very strong and the Global Robotics order book was significantly stronger at the end of FY20 than at the beginning. Since the major Japanese order that management had expected to receive in Q121 has still not been confirmed and oil prices remain unusually low, holding back investment from the oil and gas industry, our divisional FY21 EBIT estimate (£4.5m) has been cut substantially from our previous estimate of £6.0m.

As much of the division’s work related to long-term contracts from the nuclear industry, we do not expect the COVID-19 pandemic to have a lasting impact on the division. However, reduced investment from the oil and gas industry, which accounts for around one-fifth of divisional activity, is likely to continue to depress divisional performance for at least part of FY21.

Group performance and updated estimates

P&L

Group FY20 revenues declined by 2% year-on-year to £395.6m, primarily reflecting lower volumes of animal health supplements and feed associated with the unusually mild winter. Pre-exceptional PBT (excluding amortisation of acquired intangibles and non-recurring items) decreased by 17% to £14.9m because of the negative impact of lower volumes in the Agriculture division and delays to contracts in the Engineering division. The result was higher than our estimate of £14.3m. The non-recurring items were a £0.9m credit related to a net decrease in fair value of deferred consideration payable and £2.0m in restructuring costs. While NW Total has outperformed post-acquisition, Animax’s performance was lower than expected in FY20 because of reduced demand for animal health supplements. While management decided at the half year stage to defer payment of an interim dividend until the full effects of the COVID-19 pandemic were clearer, it was reinstated in July. Management is maintaining the full year dividend at FY19 levels of 4.75p/share.

Balance sheet gives resilience

Net debt (excluding £13.9m finance leases) reduced by £2.0m during the period to £18.9m which is 0.8x adjusted EBITDA. The movement is primarily attributable to a £5.2m decrease in working capital requirements which is related to lower commodity prices and a deliberate reduction in inventory levels. The retirement benefit surplus increased from £7.8m at end FY19 to £8.0m at end FY20. The group no longer makes deficit reduction contributions because the pension scheme was fully funded at the last full actuarial valuation.

Estimates

Exhibit 2: Estimate revisions

£m

2020

2021e

2022e

2023e

Estimate

Actual

Change

Old

New

Change

Old

New

Change

New

Agriculture revenues

320.0

342.6

7.1%

330.0

365.0

10.6%

360.0

375.0

4.2%

390.0

Engineering revenues

52.0

53.0

1.9%

52.5

55.0

4.8%

58.8

60.0

2.0%

65.0

Group revenues

372.0

395.6

6.4%

382.5

420.0

9.8%

418.8

435.0

3.9%

455.0

Agriculture adjusted EBIT including JVs*

11.4

13.4

17.2%

12.8

13.4

4.7%

14.1

13.7

-2.8%

14.1

Engineering adjusted EBIT*

5.9

3.8

-212.0%

6.0

4.5

-150.0%

7.1

5.2

-193.0%

5.9

Central costs*

(1.9)

(1.0)

93.7%

(2.0)

(1.0)

100.8%

(2.0)

(1.0)

99.4%

(1.1)

Group adjusted EBIT*

15.5

16.2

5.1%

16.8

16.9

0.4%

19.2

17.9

-6.9%

18.9

Normalised PBT after deducting share-based payments

14.3

14.9

4.2%

15.7

15.4

-1.7%

18.0

16.5

-8.6%

17.6

Normalised undiluted EPS after deducting share-based payments (p)

11.0

11.9

8.2%

12.4

12.2

-1.8%

14.6

13.1

-10.0%

14.2

Dividend per share (p)

4.75

4.75

0.0%

4.90

4.90

0.0%

5.10

5.10

0.0%

5.25

Net debt/(cash)

29.3

32.8

11.9%

23.9

33.4

39.7%

24.7

31.8

28.7%

27.9

Source: Edison Investment Research. Note: *After deducting share-based payments and before deducting amortisation of acquired intangible assets and non-recurring items.

We have modified our FY21 estimates to reflect improved demand for feed blocks in the US, the delay in receiving the major robotics contract from a Japanese customer and reduced investment in the oil and gas industry and the lower than expected level of central costs in FY20. We have also increased interest payments to reflect the introduction of IFRS 16. These adjustments broadly balance each other at adjusted group EBIT level and result in a 2% reduction in group PBT.

We take a more cautious view of the growth achievable in the Agriculture division in FY22. While we model similar year-on-year growth in the Engineering division during FY22 to previously, this is from a substantially lower starting point. The adjustments result in a 9% cut to our FY22 PBT estimate.

Since share-based payments were a £0.1m credit in FY20 compared with a £0.9m deduction in FY19, we are modelling share-based payments at zero going forward, and are presenting FY19 and FY20 adjusted PBT and EPS after deducting share-based payments. This is in line with management’s preferred calculation of PBT and EPS, which strips out amortisation of acquired intangibles but not share-based payments.

Valuation

DCF methodology

Our valuation methodology is based on a DCF analysis, supplemented with a comparison of peer group multiples. We continue to use a conservative 10.0% WACC and a 1.0% terminal growth rate for our DCF calculation. This gives a fair value of 170p/share. This value is unchanged since our last note because although we have downgraded both our FY21 and FY22 profit estimates, we have moved the starting year of our DCF calculation forward from FY20 to FY21. We prefer a DCF analysis to a peer-based multiples approach because it looks beyond the short-term issues of unseasonal weather and order delays currently affecting the group. The valuation gap should begin to close as there is clarity on trading arrangements post-Brexit and their impact on the Agriculture division, and data on the cost-reduction programme as well as positive news regarding the delayed Japanese contract for the German robotics business.

Exhibit 3: DCF valuation (p/share)

 

Discount rate (post-tax, nominal)

9.0%

9.5%

10.0%

10.5%

11.0%

Terminal growth

0.0%

175

167

159

152

145

1.0%

190

180

170

162

154

1.5%

199

187

177

168

160

2.0%

209

196

185

174

165

3.0%

235

218

203

190

179

Source: Edison Investment Research

Peer-based multiples

Exhibit 4: Peer based multiples

Name

Ytd performance (%)

Market cap
(£m)

EV/EBITDA 1FY (x)

EV/EBITDA 2FY (x)

P/E 1FY
(x)

P/E 2FY
(x)

ForFarmers

(5.4)

453.2

6.1

5.9

11.7

11.0

NWF Group

6.7

93.4

6.0

5.8

11.1

10.6

Origin Enterprises

0.8

417.9

7.1

6.9

9.3

8.7

Ridley Corporation

(12.9)

160.0

7.6

7.2

15.0

12.8

Wynnstay Group

14.0

68.7

6.0

5.5

11.3

10.1

Mean

6.6

6.3

11.7

10.6

Carr’s Group PLC at 121.75p/share

(21.2)

112.6

5.5

5.2

10.0

9.3

Carr’s Group PLC at 170p/share

157.2

7.3

7.0

13.9

12.9

Source: Refinitiv, Edison Investment Research. Note: Prices at 19 November 2020.

In Exhibit 4 we compare Carr’s prospective EV/EBITDA and P/E multiples with those for its listed peers in the agricultural sector. In common with these peers, Carr’s share price began to fall when markets realised that COVID-19 was a global phenomenon and then started to recover as investors recognised that agricultural supply companies should be relatively resilient to the impact of the outbreak. Superimposed on this movement was the reaction to the profits downgrade in March, when management announced a delay in receiving a major engineering order followed by a pick-up in July following positive news flow about performance in the Agriculture division and reinstatement of the dividend. At the current share price (121.75p), Carr’s is trading below its peers on all metrics. In our opinion, this discount is not justified. Firstly, Carr’s derives around one-quarter of its profits from engineering-related activities. While divisional performance this year has been affected by contract delays, the order book indicates that it is likely to recover next year, regardless of what happens in the UK agricultural sector. Secondly, Carr’s feed block activity in North America, mainland Europe and New Zealand reduces the exposure of its agricultural businesses to challenges caused by the UK climate and government policy. This sets Carr’s apart from both NWF and Wynnstay, whose agricultural activities are confined to the UK.

At the indicative value of 170p/share derived from our DCF calculation, Carr’s is trading at a substantial premium to its peers on all metrics. This is not surprising given that a DCF valuation looks at the long-term cash-generation profile rather than short-term profits and is not affected by one-off contract delays or unseasonal weather.

Exhibit 5: Financial summary

£m

2019

2020

2021e

2022e

2023e

Year end 31 August

IFRS

IFRS

IFRS

IFRS

IFRS

INCOME STATEMENT

Revenue

 

 

403.9

395.6

420.0

435.0

455.0

EBITDA (including share of profits from JVs and associate)

23.8

23.4

24.1

25.0

26.1

Operating Profit (before amor. and except.)

 

18.9

16.2

16.9

17.9

18.9

Amortisation of acquired intangibles

(0.8)

(1.4)

(1.3)

(1.3)

(1.3)

Exceptionals

(0.9)

(1.0)

0.0

0.0

0.0

Share of post-tax profit from JVs and associate

2.7

2.6

2.6

2.7

2.8

Reported operating profit

17.2

13.8

15.6

16.6

17.6

Net Interest

(0.9)

(1.3)

(1.5)

(1.4)

(1.3)

Profit Before Tax (norm)

 

 

18.0

14.9

15.4

16.5

17.6

Profit Before Tax (reported)

 

 

16.3

12.5

14.1

15.2

16.3

Reported tax

(2.7)

(1.6)

(2.6)

(2.8)

(3.0)

Profit After Tax (norm)

15.1

13.3

12.8

13.7

14.7

Profit After Tax (reported)

13.6

10.9

11.5

12.4

13.4

Minority interests

(1.6)

(1.4)

(1.6)

(1.6)

(1.6)

Net income (normalised)

13.4

11.0

11.3

12.1

13.1

Net income (reported)

12.0

9.5

10.0

10.8

11.8

Basic average number of shares outstanding (m)

91.8

92.3

92.5

92.5

92.5

EPS - normalised (p)

 

 

14.6

11.9

12.2

13.1

14.2

EPS - normalised fully diluted (p)

 

 

14.2

11.8

12.0

12.8

13.8

EPS - basic reported (p)

 

 

13.1

10.3

10.8

11.7

12.8

Dividend (p)

4.75

4.75

4.90

5.10

5.25

EBITDA Margin (%)

5.9

5.9

5.7

5.8

5.7

Normalised Operating Margin

4.7

4.1

4.0

4.1

4.2

BALANCE SHEET

Fixed Assets

 

 

115.6

127.5

129.5

126.8

124.2

Intangible Assets

42.2

41.2

41.2

41.1

41.0

Tangible Assets

41.9

53.1

55.1

52.5

50.0

Investments & other

31.5

33.1

33.1

33.1

33.1

Current Assets

 

 

140.7

119.9

119.1

122.6

133.9

Stocks

46.3

41.0

41.4

42.9

47.4

Debtors

65.8

59.8

62.1

65.5

68.6

Cash & cash equivalents

28.6

17.6

14.0

12.6

16.5

Other

0.0

1.5

1.5

1.5

1.5

Current Liabilities

 

 

(88.8)

(70.8)

(71.1)

(70.2)

(73.1)

Creditors

(63.9)

(56.6)

(59.8)

(62.0)

(64.8)

Tax and social security

(1.0)

(0.0)

(0.0)

(0.0)

(0.0)

Short term borrowings

(23.9)

(14.2)

(11.2)

(8.2)

(8.2)

Other

0.0

0.0

0.0

0.0

0.0

Long Term Liabilities

 

 

(36.6)

(42.4)

(42.4)

(42.4)

(42.4)

Long term borrowings

(28.6)

(36.2)

(36.2)

(36.2)

(36.2)

Other long-term liabilities

(8.0)

(6.2)

(6.2)

(6.2)

(6.2)

Net Assets

 

 

131.0

134.2

135.2

136.8

142.7

Minority interests

(16.7)

(17.0)

(18.6)

(20.2)

(21.8)

Shareholders’ equity

 

 

114.3

117.1

116.6

116.6

120.9

CASH FLOW

Op Cash Flow before WC and tax

23.8

23.4

24.1

25.0

26.1

Working capital

(5.0)

5.2

0.5

(2.8)

(4.6)

Exceptional & other

(2.8)

(6.0)

(2.6)

(2.7)

(2.8)

Tax

(2.3)

(3.1)

(2.6)

(2.8)

(3.0)

Net operating cash flow

 

 

13.7

19.6

19.4

16.8

15.7

Investment activities

(4.2)

(7.6)

(10.5)

(5.8)

(5.8)

Acquisitions/disposals

(10.2)

(2.7)

(3.5)

(3.5)

0.0

Net interest

(1.1)

(1.5)

(1.5)

(1.4)

(1.3)

Equity financing

0.0

0.0

0.0

0.0

0.0

Dividends

(4.2)

(3.3)

(4.4)

(4.5)

(4.7)

Other

(0.6)

0.8

0.0

0.0

0.0

Net Cash Flow

(6.6)

5.2

(0.5)

1.5

3.9

Opening net debt/(cash)

 

 

15.4

23.8

32.8

33.4

31.8

FX

0.0

0.0

0.0

0.0

0.0

Other non-cash movements

(1.9)

(14.3)

0.0

0.0

0.0

Closing net debt/(cash)

 

 

23.8

32.8*

33.4 *

31.8*

27.9*

Source: Company accounts, Edison Investment Research. Note: *Including IFRS 16 leases.

General disclaimer and copyright

This report has been commissioned by Carr’s Group and prepared and issued by Edison, in consideration of a fee payable by Carr’s Group. Edison Investment Research standard fees are £49,500 pa for the production and broad dissemination of a detailed note (Outlook) following by regular (typically quarterly) update notes. Fees are paid upfront in cash without recourse. Edison may seek additional fees for the provision of roadshows and related IR services for the client but does not get remunerated for any investment banking services. We never take payment in stock, options or warrants for any of our services.

Accuracy of content: All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report and have not sought for this information to be independently verified. Opinions contained in this report represent those of the research department of Edison at the time of publication. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations.

Exclusion of Liability: To the fullest extent allowed by law, Edison shall not be liable for any direct, indirect or consequential losses, loss of profits, damages, costs or expenses incurred or suffered by you arising out or in connection with the access to, use of or reliance on any information contained on this note.

No personalised advice: The information that we provide should not be construed in any manner whatsoever as, personalised advice. Also, the information provided by us should not be construed by any subscriber or prospective subscriber as Edison’s solicitation to effect, or attempt to effect, any transaction in a security. The securities described in the report may not be eligible for sale in all jurisdictions or to certain categories of investors.

Investment in securities mentioned: Edison has a restrictive policy relating to personal dealing and conflicts of interest. Edison Group does not conduct any investment business and, accordingly, does not itself hold any positions in the securities mentioned in this report. However, the respective directors, officers, employees and contractors of Edison may have a position in any or related securities mentioned in this report, subject to Edison’s policies on personal dealing and conflicts of interest.

Copyright: Copyright 2020 Edison Investment Research Limited (Edison).

Australia

Edison Investment Research Pty Ltd (Edison AU) is the Australian subsidiary of Edison. Edison AU is a Corporate Authorised Representative (1252501) of Crown Wealth Group Pty Ltd who holds an Australian Financial Services Licence (Number: 494274). This research is issued in Australia by Edison AU and any access to it, is intended only for "wholesale clients" within the meaning of the Corporations Act 2001 of Australia. Any advice given by Edison AU is general advice only and does not take into account your personal circumstances, needs or objectives. You should, before acting on this advice, consider the appropriateness of the advice, having regard to your objectives, financial situation and needs. If our advice relates to the acquisition, or possible acquisition, of a particular financial product you should read any relevant Product Disclosure Statement or like instrument.

New Zealand

The research in this document is intended for New Zealand resident professional financial advisers or brokers (for use in their roles as financial advisers or brokers) and habitual investors who are “wholesale clients” for the purpose of the Financial Advisers Act 2008 (FAA) (as described in sections 5(c) (1)(a), (b) and (c) of the FAA). This is not a solicitation or inducement to buy, sell, subscribe, or underwrite any securities mentioned or in the topic of this document. For the purpose of the FAA, the content of this report is of a general nature, is intended as a source of general information only and is not intended to constitute a recommendation or opinion in relation to acquiring or disposing (including refraining from acquiring or disposing) of securities. The distribution of this document is not a “personalised service” and, to the extent that it contains any financial advice, is intended only as a “class service” provided by Edison within the meaning of the FAA (i.e. without taking into account the particular financial situation or goals of any person). As such, it should not be relied upon in making an investment decision.

United Kingdom

This document is prepared and provided by Edison for information purposes only and should not be construed as an offer or solicitation for investment in any securities mentioned or in the topic of this document. A marketing communication under FCA Rules, this document has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research.

This Communication is being distributed in the United Kingdom and is directed only at (i) persons having professional experience in matters relating to investments, i.e. investment professionals within the meaning of Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, as amended (the "FPO") (ii) high net-worth companies, unincorporated associations or other bodies within the meaning of Article 49 of the FPO and (iii) persons to whom it is otherwise lawful to distribute it. The investment or investment activity to which this document relates is available only to such persons. It is not intended that this document be distributed or passed on, directly or indirectly, to any other class of persons and in any event and under no circumstances should persons of any other description rely on or act upon the contents of this document.

This Communication is being supplied to you solely for your information and may not be reproduced by, further distributed to or published in whole or in part by, any other person.

United States

Edison relies upon the "publishers’ exclusion" from the definition of investment adviser under Section 202(a)(11) of the Investment Advisers Act of 1940 and corresponding state securities laws. This report is a bona fide publication of general and regular circulation offering impersonal investment-related advice, not tailored to a specific investment portfolio or the needs of current and/or prospective subscribers. As such, Edison does not offer or provide personal advice and the research provided is for informational purposes only. No mention of a particular security in this report constitutes a recommendation to buy, sell or hold that or any security, or that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person.

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

1185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

1185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

General disclaimer and copyright

This report has been commissioned by Carr’s Group and prepared and issued by Edison, in consideration of a fee payable by Carr’s Group. Edison Investment Research standard fees are £49,500 pa for the production and broad dissemination of a detailed note (Outlook) following by regular (typically quarterly) update notes. Fees are paid upfront in cash without recourse. Edison may seek additional fees for the provision of roadshows and related IR services for the client but does not get remunerated for any investment banking services. We never take payment in stock, options or warrants for any of our services.

Accuracy of content: All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report and have not sought for this information to be independently verified. Opinions contained in this report represent those of the research department of Edison at the time of publication. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations.

Exclusion of Liability: To the fullest extent allowed by law, Edison shall not be liable for any direct, indirect or consequential losses, loss of profits, damages, costs or expenses incurred or suffered by you arising out or in connection with the access to, use of or reliance on any information contained on this note.

No personalised advice: The information that we provide should not be construed in any manner whatsoever as, personalised advice. Also, the information provided by us should not be construed by any subscriber or prospective subscriber as Edison’s solicitation to effect, or attempt to effect, any transaction in a security. The securities described in the report may not be eligible for sale in all jurisdictions or to certain categories of investors.

Investment in securities mentioned: Edison has a restrictive policy relating to personal dealing and conflicts of interest. Edison Group does not conduct any investment business and, accordingly, does not itself hold any positions in the securities mentioned in this report. However, the respective directors, officers, employees and contractors of Edison may have a position in any or related securities mentioned in this report, subject to Edison’s policies on personal dealing and conflicts of interest.

Copyright: Copyright 2020 Edison Investment Research Limited (Edison).

Australia

Edison Investment Research Pty Ltd (Edison AU) is the Australian subsidiary of Edison. Edison AU is a Corporate Authorised Representative (1252501) of Crown Wealth Group Pty Ltd who holds an Australian Financial Services Licence (Number: 494274). This research is issued in Australia by Edison AU and any access to it, is intended only for "wholesale clients" within the meaning of the Corporations Act 2001 of Australia. Any advice given by Edison AU is general advice only and does not take into account your personal circumstances, needs or objectives. You should, before acting on this advice, consider the appropriateness of the advice, having regard to your objectives, financial situation and needs. If our advice relates to the acquisition, or possible acquisition, of a particular financial product you should read any relevant Product Disclosure Statement or like instrument.

New Zealand

The research in this document is intended for New Zealand resident professional financial advisers or brokers (for use in their roles as financial advisers or brokers) and habitual investors who are “wholesale clients” for the purpose of the Financial Advisers Act 2008 (FAA) (as described in sections 5(c) (1)(a), (b) and (c) of the FAA). This is not a solicitation or inducement to buy, sell, subscribe, or underwrite any securities mentioned or in the topic of this document. For the purpose of the FAA, the content of this report is of a general nature, is intended as a source of general information only and is not intended to constitute a recommendation or opinion in relation to acquiring or disposing (including refraining from acquiring or disposing) of securities. The distribution of this document is not a “personalised service” and, to the extent that it contains any financial advice, is intended only as a “class service” provided by Edison within the meaning of the FAA (i.e. without taking into account the particular financial situation or goals of any person). As such, it should not be relied upon in making an investment decision.

United Kingdom

This document is prepared and provided by Edison for information purposes only and should not be construed as an offer or solicitation for investment in any securities mentioned or in the topic of this document. A marketing communication under FCA Rules, this document has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research.

This Communication is being distributed in the United Kingdom and is directed only at (i) persons having professional experience in matters relating to investments, i.e. investment professionals within the meaning of Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, as amended (the "FPO") (ii) high net-worth companies, unincorporated associations or other bodies within the meaning of Article 49 of the FPO and (iii) persons to whom it is otherwise lawful to distribute it. The investment or investment activity to which this document relates is available only to such persons. It is not intended that this document be distributed or passed on, directly or indirectly, to any other class of persons and in any event and under no circumstances should persons of any other description rely on or act upon the contents of this document.

This Communication is being supplied to you solely for your information and may not be reproduced by, further distributed to or published in whole or in part by, any other person.

United States

Edison relies upon the "publishers’ exclusion" from the definition of investment adviser under Section 202(a)(11) of the Investment Advisers Act of 1940 and corresponding state securities laws. This report is a bona fide publication of general and regular circulation offering impersonal investment-related advice, not tailored to a specific investment portfolio or the needs of current and/or prospective subscribers. As such, Edison does not offer or provide personal advice and the research provided is for informational purposes only. No mention of a particular security in this report constitutes a recommendation to buy, sell or hold that or any security, or that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person.

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

1185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

1185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

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