Carr’s Group — Weaker agriculture markets affect expectations

Carr’s Group (LSE: CARR)

Last close As at 20/06/2024

GBP1.40

−0.50 (−0.36%)

Market capitalisation

GBP133m

More on this equity

Research: Industrials

Carr’s Group — Weaker agriculture markets affect expectations

External factors, US drought and excessive input prices, in the Speciality Agriculture business continue to weigh on volumes. As these reverse, strong market positions should help to drive activity back towards historical levels. With the Engineering division performing well the medium-term outlook is far more encouraging than the short-term market issues may suggest.

David Larkam

Written by

David Larkam

Analyst, Industrials

Industrials

Carr’s Group

Weaker agriculture markets affect expectations

Trading update

General industrials

7 August 2023

Price

125p

Market cap

£124m

Net cash (£m) at 4 March 2023 (excluding finance leases)

8.6

Shares in issue

94.1m

Free float

61.5%

Code

CARR

Primary exchange

LSE

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

(14.7)

1.6

(2.9)

Rel (local)

(15.4)

3.4

(3.2)

52-week high/low

150p

92p

Business description

Carr’s Group’s Speciality Agriculture division serves farmers in the UK, Ireland, the US, Germany, Canada and New Zealand with feed blocks and feed supplements. The Engineering division offers remote handling equipment and fabrications to the global nuclear and oil & gas industries.

Next event

FY23 year-end update

October 2023

Analyst

David Larkam

+44 (0)20 3077 5700

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

External factors, US drought and excessive input prices, in the Speciality Agriculture business continue to weigh on volumes. As these reverse, strong market positions should help to drive activity back towards historical levels. With the Engineering division performing well the medium-term outlook is far more encouraging than the short-term market issues may suggest.

Year end

Revenue (£m)

PBT*
(£m)

EPS*
(p)

DPS
(p)

P/E
(x)

Yield
(%)

08/21**

120.3

10.4

10.1

5.00

12.4

4.0

08/22

124.2

11.2

10.0

5.20

12.5

4.2

08/23e

145.2

8.0

6.7

5.20

18.7

4.2

08/24e

151.0

9.7

7.8

5.30

16.1

4.2

Note: *PBT and EPS are normalised, excluding amortisation of acquired intangibles, exceptional items and share-based payments. **Restated to treat Agricultural Supply as a discontinued business.

Agriculture softer but Engineering robust

The Speciality Agriculture business reported a softer first half, with US volumes down 10% due to drought conditions and UK volumes down 20% due to significant price increases leading farmers to increase outside grazing and reduce feed block purchases. These trends have continued, with August, a key month for the group, expected to be particularly weak, leading to lower expectations for the full financial year. Management’s expectation is for a slight improvement next year, particularly if US herds start to recover. The Engineering division continues to perform in line with management guidance with the order book providing 18 months’ visibility, suggesting upside to FY24. The central costs are also expected to be slightly higher in the current financial year due to the acceleration of the ‘transition service agreement’ associated with the Billington Group, which is now expected to be completed earlier, suggesting some reduction in FY24, albeit with inflationary pressures they are unlikely to quickly return to previously expected levels. We expect the group to finish the year with strong cash position, albeit with some impact from the lower profitability and increased working capital to support the Engineering division, as previously announced. The group is paying a second interim dividend of 1.175p, we forecast the full year dividend to be held at 5.2p.

CEO succession

Peter Page has agreed not to seek re-election at the next AGM, which is expected in February 2022. He became non-executive chairman in January 2020, interim executive chairman in October 2021 and CEO in February 2023.

Valuation and changes to forecasts

Our DCF valuation (with a WACC of 9.5% and a long-term growth rate of 2.0%) comes to 153p. We have reduced our forecasts as follows: FY23 underlying PBT from £10.0m to £8.0m (-20.3%) and underlying EPS from 8.4p to 6.7p (-20.3%). FY24 underlying PBT from £11.1m to £9.7m (-12.0%) and underlying EPS from 8.8p to 7.8p (-12.0%).

Changes to forecasts

Exhibit 1: Key forecast changes

£m

FY23e

FY24e

Old

New

Change

Old

New

Change

Speciality Agriculture revenues

93.0

90.0

-3.2%

96.0

92.0

-4.2%

Engineering revenues

55.2

55.2

0.0%

57.0

59.0

3.5%

Group revenues

148.2

145.2

-2.0%

153.0

151.0

-1.3%

Speciality Agriculture EBITA including JVs

7.4

6.1

-17.0%

8.0

6.5

-18.8%

Engineering EBITA

5.7

5.5

-3.5%

5.8

6.5

12.1%

Central costs

(2.6)

(3.2)

22.6%

(2.3)

(2.9)

22.6%

Group EBITA after deducting share-based payments

10.4

8.4

-19.5%

11.5

10.1

-11.6%

Net finance costs

(0.4)

(0.4)

0.0%

-0.4

(0.4)

0.0%

Normalised PBT after deducting share-based payments

10.0

8.0

-20.3%

11.1

9.7

-12.0%

Normalised undiluted EPS (p)

8.4

6.7

-20.3%

8.8

7.8

-12.0%

Dividend per share (p)

5.4

5.2

-3.7%

5.6

5.3

-5.4%

Net debt/(cash)

(5.0)

(3.2)

-36.0%

(12.3)

(9.9)

-19.1%

Source: Edison Investment Research

Valuation

Our valuation is based on a discounted cash flow (DCF) to accommodate the two different operating divisions. Exhibit 2 shows our DCF valuation per share relative to the cost of capital (WACC) and terminal growth rate assumptions. Using a 9.5% WACC and a 2.0% terminal growth rate gives an indicative value of 153p/share.

Exhibit 2: DCF valuation (p/share) – sensitivities to WACC and terminal growth assumptions

Discount rate (post-tax, nominal)

8.0%

9.0%

9.5%

10.0%

11.0%

Terminal growth

0.0%

160

143

136

130

120

1.0%

176

155

147

139

127

1.5%

185

162

153

145

131

2.0%

196

170

160

151

135

3.0%

226

190

177

165

146

Source: Edison Investment Research

Exhibit 3: Financial summary

£m

2021

2022

2023e

2024e

Year end 31 August

IFRS

IFRS

IFRS

IFRS

INCOME STATEMENT

Revenue

120.3

124.2

145.2

151.0

EBITDA

14.9

16.0

12.5

14.2

Operating profit (before amort. and excepts.)

11.1

11.9

8.4

10.1

Amortisation of acquired intangibles

(1.2)

(0.9)

(0.9)

(0.9)

Exceptionals

(1.7)

(2.7)

0.0

0.0

Reported operating profit

8.2

8.2

7.5

9.2

Net Interest

(0.7)

(0.7)

(0.4)

(0.4)

Exceptionals

0.0

0.0

0.0

0.0

Profit Before Tax (norm)

10.4

11.2

8.0

9.7

Profit Before Tax (reported)

7.5

7.6

7.1

8.8

Reported tax

(1.8)

(1.5)

(1.7)

(2.4)

Profit After Tax (norm) - continuing businesses

9.4

9.4

6.3

7.3

Profit After Tax (reported) - continuing businesses

5.7

6.0

5.3

6.4

Profit after tax of discontinued operations

3.8

4.0

0.0

0.0

Loss on disposal of discontinued operations

0.0

(6.2)

0.0

0.0

Reported profit for the year including discontinued operations

9.6

1.1

5.3

6.4

Average Number of Shares Outstanding (m)

93.1

93.9

94.0

94.0

EPS - normalised (p)

10.1

10.0

6.7

7.8

EPS - normalised fully diluted (p)

9.9

9.9

8.5

8.6

EPS - basic reported (p)

6.2

6.4

5.7

6.8

Dividend (p)

5.00

5.20

5.20

5.30

EBITDA Margin (%)

12.4

12.9

8.6

9.4

Normalised Operating Margin

9.2

9.6

5.8

6.7

BALANCE SHEET

Fixed Assets

123.5

83.2

82.1

80.9

Intangible Assets

36.7

28.2

27.6

27.0

Tangible Assets

53.0

41.4

40.9

40.3

Investments & other

33.9

13.6

13.6

13.6

Current Assets

139.1

225.8

103.7

108.8

Stocks

43.2

27.0

26.7

27.0

Debtors

68.9

26.6

26.3

26.7

Cash & cash equivalents

24.3

22.5

44.3

48.6

Other

2.7

149.7

6.5

6.5

Current Liabilities

(87.0)

(139.9)

(34.2)

(32.7)

Creditors

(72.8)

(23.4)

(22.3)

(23.2)

Tax and social security

(0.0)

(0.7)

(0.7)

(0.7)

Short term borrowings including finance leases

(14.1)

(14.2)

(11.2)

(8.8)

Other

0.0

(101.6)

(0.1)

(0.1)

Long Term Liabilities

(41.2)

(35.3)

(35.3)

(35.3)

Long term borrowings including finance leases

(35.6)

(29.9)

(29.9)

(29.9)

Other long term liabilities

(5.6)

(5.4)

(5.4)

(5.4)

Net Assets

134.6

133.7

116.3

121.7

CASH FLOW

Operating Cash Flow

14.9

16.0

12.5

14.2

Working capital

5.3

(8.7)

(1.8)

0.1

Exceptional & other

(2.1)

(2.8)

0.0

0.0

Tax

(1.3)

(0.8)

(1.7)

(2.4)

Net Operating Cash Flow

16.9

3.7

8.9

11.8

Investment activities

(3.0)

(4.0)

(3.8)

(3.8)

Acquisitions/disposals

(1.1)

(0.4)

25.0

4.0

Net interest

(0.8)

(0.8)

(0.4)

(0.4)

Equity financing

0.9

0.4

0.0

0.0

Dividends

(5.5)

(4.7)

(4.9)

(4.9)

Other

3.4

13.1

0.0

0.0

Net Cash Flow

10.8

7.2

24.8

6.7

Opening net debt/(cash) including finance leases

(32.8)

25.4

21.6

(3.2)

FX

0.0

0.0

0.0

0.0

Other non-cash movements

(69.0)

(3.3)

0.0

0.0

Closing net debt/(cash) inc finance leases

25.4

21.6

(3.2)

(9.9)

Finance leases

15.4

7.5

7.5

7.5

Closing net debt/(cash) excluding finance leases

10.0

14.0

(10.8)

(17.5)

Source: Company data, Edison Investment Research

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 £60,000 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 2023 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.

London │ New York │ Frankfurt

20 Red Lion Street

London, WC1R 4PS

United Kingdom

London │ New York │ Frankfurt

20 Red Lion Street

London, WC1R 4PS

United Kingdom

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 £60,000 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 2023 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.

London │ New York │ Frankfurt

20 Red Lion Street

London, WC1R 4PS

United Kingdom

London │ New York │ Frankfurt

20 Red Lion Street

London, WC1R 4PS

United Kingdom

More on Carr’s Group

View All

Latest from the Industrials sector

View All Industrials content

Research: Investment Companies

The Law Debenture Corporation — Continuing to differentiate itself

The Law Debenture Corporation (LWDB) continued to successfully navigate challenging conditions in H123, growing its professional services business (IPS) in line with its mid to high single-digit target, while consolidating its strong, long-term performance record. This rare combination of a UK investment trust and the cash-generative IPS operating business has delivered outperformance of its broad UK equity benchmark over multiple periods with a strong record of dividend growth.

Continue Reading

Subscribe to Edison

Get access to the very latest content matched to your personal investment style.

Sign up for free