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GBP114m
Research: Industrials
Carr’s trading update for the first 20 weeks of FY22 notes that the group has made a positive start to the year with overall performance during the period broadly in line with Board expectations. Importantly, the announcement notes that while the Board sees potential for growth in each of the three divisions, there are limited opportunities to exploit inter-divisional synergies, so it has decided to conduct a strategic review. We leave our estimates unchanged and reiterate our indicative valuation of 170p/share.
Carr’s Group |
Engineering recovery sustained |
AGM statement |
General industrials |
18 January 2022 |
Share price performance
Business description
Next event
Analyst
Carr’s Group is a research client of Edison Investment Research Limited |
Carr’s trading update for the first 20 weeks of FY22 notes that the group has made a positive start to the year with overall performance during the period broadly in line with Board expectations. Importantly, the announcement notes that while the Board sees potential for growth in each of the three divisions, there are limited opportunities to exploit inter-divisional synergies, so it has decided to conduct a strategic review. We leave our estimates unchanged and reiterate our indicative valuation of 170p/share.
Year end |
Revenue (£m) |
PBT* |
EPS* |
DPS |
P/E |
Yield |
08/20** |
395.6 |
15.0 |
12.0 |
4.75 |
12.8 |
3.1 |
08/21 |
417.3 |
16.6 |
13.2 |
5.00 |
11.5 |
3.3 |
08/22e |
422.5 |
17.3 |
13.7 |
5.20 |
11.2 |
3.4 |
08/23e |
434.0 |
17.9 |
14.0 |
5.40 |
10.9 |
3.5 |
Note: *PBT and EPS are normalised, excluding amortisation of acquired intangibles, exceptional items and share-based payments. **Restated.
Strong livestock prices supporting feedblock sales
Sales volumes in the Speciality Agriculture division were ahead of the prior year, despite the drought affecting the northern part of the US and the mild weather in the UK because strong livestock prices in both the UK and the US incentivised farmers in both countries to enhance output. However, margins were modestly affected by raw material price increases. Trading in the Agricultural Supplies division was on track, with strong sales of agricultural machinery reflecting high levels of farmer confidence as a result of good livestock and farmgate milk prices. This offset raw material price volatility and reduced demand for fuel related to the mild weather. These trends tally with the assumptions underpinning our estimates, which model flat divisional performance for the Speciality Agriculture division and a modest improvement for the Agricultural Supplies division in FY22.
Engineering trading ahead of prior year period
The December announcement noted that there had been a big jump in orders for fabrication work and good order intake in the precision engineering business during H221. As anticipated, this has resulted in a strong performance in both businesses during the period. The Remote Handling and Robotics performance was also better than the prior year period. As expected, although both the UK and US Engineering Solutions business won major contracts during FY21, contract phasing meant that levels of activity for both businesses were lower than during the prior year period. The Engineering order book remains strong so although divisional performance was substantially ahead of the prior year, despite being behind Board expectations, we leave our divisional and group estimates unchanged.
Valuation: Indicative valuation of 170p/share
Our DCF analysis gives an indicative value of 170p/share, which, like our estimates, has not been changed. We believe that the valuation gap between the current share price and our indicative valuation and should start to close as the strong Engineering order book converts to an improved divisional performance.
Exhibit 1: Financial summary
£m |
2020 |
2021 |
2022e |
2023e |
||
Year end 31 August |
IFRS |
IFRS |
IFRS |
IFRS |
||
INCOME STATEMENT |
restated |
|||||
Revenue |
|
|
395.6 |
417.3 |
422.5 |
434.0 |
Share of post-tax profit from JVs and associate |
2.6 |
2.9 |
2.8 |
2.9 |
||
EBITDA |
|
|
23.4 |
23.9 |
24.8 |
25.4 |
Operating Profit (before amor. and except.) |
|
16.3 |
17.6 |
18.3 |
18.9 |
|
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 |
17.8 |
||
Net Interest |
(1.3) |
(1.0) |
(1.0) |
(1.0) |
||
Profit Before Tax (norm) |
|
|
15.0 |
16.6 |
17.3 |
17.9 |
Profit Before Tax (reported) |
|
|
10.9 |
12.1 |
16.1 |
16.8 |
Reported tax |
(1.3) |
(2.4) |
(2.9) |
(3.2) |
||
Profit After Tax (norm) |
12.7 |
14.7 |
14.4 |
14.7 |
||
Profit After Tax (reported) |
9.6 |
9.7 |
13.2 |
13.5 |
||
Minority interests |
(1.2) |
(1.9) |
(1.6) |
(1.6) |
||
Net income (normalised) |
11.1 |
12.3 |
12.8 |
13.1 |
||
Net income (reported) |
8.4 |
7.7 |
11.6 |
11.9 |
||
Average number of shares outstanding (m) |
92.3 |
93.1 |
93.7 |
93.7 |
||
EPS - normalised (p) |
|
|
12.0 |
13.2 |
13.7 |
14.0 |
EPS - normalised fully diluted (p) |
|
|
11.8 |
13.0 |
13.4 |
13.8 |
EPS - basic reported (p) |
|
|
9.1 |
8.3 |
12.4 |
12.7 |
Dividend (p) |
4.75 |
5.00 |
5.20 |
5.40 |
||
EBITDA Margin (%) |
5.9 |
5.7 |
5.9 |
5.9 |
||
Normalised Operating Margin |
4.1 |
4.2 |
4.3 |
4.4 |
||
BALANCE SHEET |
||||||
Fixed Assets |
|
|
124.4 |
123.4 |
120.3 |
117.2 |
Intangible Assets |
38.4 |
36.7 |
35.5 |
34.3 |
||
Tangible Assets |
53.1 |
53.0 |
51.1 |
49.3 |
||
Investments & other |
32.9 |
33.7 |
33.7 |
33.7 |
||
Current Assets |
|
|
120.4 |
139.1 |
136.9 |
143.2 |
Stocks |
41.0 |
43.2 |
44.0 |
45.2 |
||
Debtors |
59.8 |
68.9 |
67.1 |
69.0 |
||
Cash & cash equivalents |
17.6 |
24.3 |
23.1 |
26.4 |
||
Other |
2.1 |
2.7 |
2.7 |
2.7 |
||
Current Liabilities |
|
|
(70.8) |
(86.1) |
(75.9) |
(73.5) |
Creditors |
(56.6) |
(72.0) |
(64.8) |
(65.4) |
||
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) |
(41.2) |
Long term borrowings including finance leases |
(36.2) |
(35.6) |
(35.6) |
(35.6) |
||
Other long term liabilities |
(6.2) |
(5.6) |
(5.6) |
(5.6) |
||
Net Assets |
|
|
131.6 |
135.2 |
140.0 |
145.8 |
Minority interests |
(16.8) |
(17.2) |
(18.7) |
(20.3) |
||
Shareholders' equity |
|
|
114.8 |
118.1 |
121.3 |
125.5 |
CASH FLOW |
||||||
Op Cash Flow before WC and tax |
23.4 |
23.9 |
24.8 |
25.4 |
||
Working capital |
5.2 |
3.2 |
(6.1) |
(2.4) |
||
Exceptional & other |
(7.4) |
(4.9) |
(2.8) |
(2.9) |
||
Tax |
(3.1) |
(2.1) |
(2.9) |
(3.2) |
||
Operating cash flow |
|
|
18.2 |
20.0 |
13.0 |
16.8 |
Investment activities |
(6.2) |
(3.6) |
(4.6) |
(4.6) |
||
Acquisitions/disposals |
(2.7) |
(1.1) |
(0.9) |
0.0 |
||
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 |
0.0 |
||
Net Cash Flow |
5.2 |
9.9 |
1.8 |
6.4 |
||
Opening net debt/(cash) including finance leases |
|
23.8 |
32.8 |
25.4 |
23.6 |
|
FX |
0.0 |
0.0 |
0.0 |
0.0 |
||
Other non-cash movements |
(14.3) |
(2.5) |
0.0 |
0.0 |
||
Closing net debt/(cash) including finance leases |
|
32.8 |
25.4 |
23.6 |
17.3 |
|
Finance leases |
13.9 |
15.4 |
15.4 |
15.4 |
||
Closing net debt/(cash) excluding finance leases |
18.9 |
10.0 |
8.2 |
1.8 |
Source: Company accounts, Edison Investment Research
|
|
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