Order patterns at international distributor and manufacturer Acal (ACL) indicate a pick-up in business activity at the back end of 2016, says chief executive Nick Jefferies
Acal's Jefferies, speaking today at full year results, echoed views of management at manufacturer Renold (RNO) yesterday, who pointed to signs of stabilisation in industrial demand which may lead to improved sales and profitability in the second half of 2016.
Analysts recently started to upgrade earnings forecasts on MSCI World-listed stocks, according to research from asset manager Henderson, indicating improving commercial fortunes in markets across the world.
And Jefferies is optimistic on Acal's next financial year despite client caution ahead of Britain's referendum on Europe.
'We think the first half will be flattish and we think that because customers are being cautious,' Jefferies said of Acal's expectations for the six months to 30 September.
'Orders are quite good but sales call-off is not as strong because customers are choosing to take products deliveries in smaller chunks. We're seeing that in the UK, Germany and Europe more generally.
'We think that's probably linked to the referendum in the UK, but we can also see signs that customers are starting to prepare themselves for better times ahead.
'If customers do what they are indicating to us at the moment, that will drive growth in the second half.'
Acal posted organic sales growth of 3% in the year to 31 March 2016.
The number excludes two large one-off contracts secured in the prior period, currency fluctuations and the contribution from businesses acquired in the year.
Including the contracts, organic sales declined 2% on the prior year.
Acquisitions added 11% to top line growth – Acal bought three businesses for around £21 million in the year – meaning overall sales gained 14% to £287.7 million.
Underlying operating profit of £16.3 million, which excludes one-off charges like admin costs on buying new businesses, was up 36% excluding currency fluctuations.
Operating margins increased one percentage point to 5.7%.
Earnings per share on an underlying basis increased 23% to 17p and Acal's board is recommending a dividend payout 6% higher at 8.05p a share.
'We have good organic growth and rising margins which puts us in a fairly small group of companies over the last financial year,' Jefferies said.
'This is a high quality business model which we think can deliver whether economic conditions are strong or weak.'
Shares in Acal trade 1.5% lower at 261p, slightly worse than the FTSE All-Share which is down 1.1%.