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This morning, Avon Rubber announced completion of the disposal of Avon Engineered Fabrications (AEF) for $9.25m. The company announced in its FY17 annual report that it was considering the strategic options for the business. We estimate that this deal should add c £6m to cash at current exchange rates. Overall, the company’s threefold growth strategy remains in place and we are encouraged to see the actions management is taking.
Written by
Avon Rubber |
Strategy continues to take shape |
AEF disposal |
Aerospace & defence |
3 April 2018 |
Share price performance
Business description
Analysts
Avon Rubber is a research client of Edison Investment Research Limited |
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This morning, Avon Rubber announced completion of the disposal of Avon Engineered Fabrications (AEF) for $9.25m. The company announced in its FY17 annual report that it was considering the strategic options for the business. We estimate that this deal should add c £6m to cash at current exchange rates. Overall, the company’s threefold growth strategy remains in place and we are encouraged to see the actions management is taking.
Year end |
Revenue (£m) |
PBT* |
EPS* |
DPS |
P/E |
Yield |
09/16 |
142.9 |
20.7 |
70.5 |
9.5 |
18.0 |
0.7 |
09/17 |
163.2 |
25.6 |
82.3 |
12.3 |
15.4 |
1.0 |
09/18e |
163.2 |
26.4 |
74.5 |
16.0 |
17.0 |
1.3 |
09/19e |
169.2 |
28.1 |
74.7 |
20.8 |
17.0 |
1.6 |
Note: *PBT and EPS are normalised, excluding amortisation of acquired intangibles and share-based payments.
The AEF business, based in Mississippi, US, delivers world-class coated fabrics to a broad range of end-markets, including hovercraft skirts and liquid storage tanks. Reported in the Avon Protection division, the FY17 revenue contribution was £4m (FY16: £4.8m). The company has stated that the group’s acquisition strategy would result, in the medium term, in AEF losing its US small business regime benefits. Hence, although AEF had a strong Q417 and a healthy order book, the FY17 annual report mentioned that the group was “considering the strategic options for this business”.
The sale for $9.25m to Performance Inflatables Co, a Pinewell Capital portfolio company, is on a cash and debt-free basis subject to a customary working capital adjustment. We estimate that the cash contribution will be £6m at current exchange rates, after adjustments, costs and tax. AEF will be reported in discontinued operations for FY18.
This disposal demonstrates that Avon management is focused on delivering its threefold growth strategy. The overall approach is to grow the core, add selective product development and make value-enhancing acquisitions to accelerate growth. In Avon Protection, recent progress shows the strength of opportunity with the US Department of Defense and law enforcement organisations. The company is expected to report H118 numbers on 2 May 2018.
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Research: TMT
IQE’s FY17 results confirm that the photonics volume ramp-up referred to in the pre-close update has delivered the strong growth in revenues (16%) and PBT (18%) that was expected. Based on management’s guidance for this growth trend to continue, we upgrade our FY18 estimates and note the potential for sustained growth over the next three to five years.