Geopolitical uncertainty, particularly in eastern Europe has prompted a profit warningfrom 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.
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.
