Carr's Group: FY21 Results Ahead Of Improved Expectations
Edison Group | Dec 08, 2021 06:15
Carr’s Group's (LON:CARRC) FY21 results were ahead of management’s improved expectations, with increased profits across both the Speciality Agriculture and Agricultural Supplies divisions offsetting weaker performance from the Engineering division caused by low oil prices during Q121. Noting continued strength in livestock prices in the United States and the UK, stable farmgate milk prices in the UK and a strong Engineering order book, we raise our FY22 and FY23 PBT estimates by 4.7% and 2.2% respectively.
Carr’s Group’s Speciality Agriculture and Agricultural Supplies divisions serve farmers in the North of England, South Wales, the Welsh Borders and Scotland, the United States, Germany, Canada and New Zealand. The Engineering division offers remote handling equipment and fabrications to the global nuclear and oil and gas industries.
h3 Outperformance in agricultural divisions in FY21/h3Group FY21 revenues increased by 5.5% year-on-year to £417.3m reflecting higher volumes of feed blocks and feed combined with commodity price inflation, which offset underperformance in those engineering activities exposed to the oil and gas market. Adjusted operating profit grew by 7.9% to £17.6m, as improved performances from both the agriculture related divisions were partly offset by the underperformance in the Engineering division and a sharp increase in central costs, which returned to normal levels. Stronger than expected US feed block sales over the summer led to a performance ahead of management ’s expectations, which had been raised in July. The results were also slightly ahead of our estimates.
h3 Order book underpins FY22 Engineering recovery/h3Livestock prices in the UK and the United States continue to be strong and milk prices in the UK are stable. This is encouraging farmers in both regions to invest in feed blocks and supplements to enhance farm outputs, which is beneficial for the Speciality Agriculture division. The situation is also supportive for the Agricultural Supplies division, which only operates in the UK. The Engineering division’s order book was 15.9% higher year-on-year at end FY21, reflecting a big jump in orders for fabrication work and good order intake at the precision engineering business during H221 as oil and gas companies resumed investment in exploration activity. This improved order book backs our assumption of divisional recovery during FY22.
h3 Valuation: Indicative valuation of 170p/share/h3
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Our DCF analysis gives an indicative value of 170p/share (previously 165p/share), with the small increase resulting from our profits upgrade. We believe that the valuation gap with respect to our indicative valuation and peer share price multiple averages should start to close as the strong Engineering order book converts to an improved divisional performance.
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