Geopolitical uncertainty, particularly in eastern Europe has prompted a profit warning from performance materials specialist Low & Bonar (LWB) and sees shares tumble 17.5% to 67p.

The group's trading update informed investors that since 'since reporting results on 10 July 2014, the group has experienced a drop in demand across its European civil engineering markets reflecting a slowdown in construction activity and the continuing difficult economic and geopolitical climate in Europe.'

The fact that this sector accounts for around a quarter of group sales has led to a number of profit downgrades with Numis reducing their 2014 profit before tax forecast from £28.6 million to £25.3 million while 2015 pre-tax profit forecasts have been slashed from £36 million to £30 million.

LOW & BONAR - Comparison Line Chart (Rebased to first)

But it's not all down to contagion concerns relating to skirmishes in eastern Ukraine. The group's civil engineering joint venture in Saudi Arabia has continued to suffer a slower than expected order intake as a result of a delay in obtaining a key product certification. A loss of at least £1 million is now anticipated for 2014.

While the rest of the group's businesses continue to perform well and are in line with the board's expectations as evidenced by the 4% growth in civil engineering sales in the first-half on a like-for-like basis, the current third quarter reduction is likely to impact full year sales and this sector is consequently expected to be flat over all as a result.

N+1 Singer characterises the profit warning as a disappointing reminder of the cyclicality of some of Low & Bonar’s end markets.  The broker has cut its price target from 96p to 75p.

Issue Date: 05 Sep 2014