That and the 25%-odd November rally of the stock help explain today's early modest share price decline, although the stock has since recovered to nudge around 1.5% higher to 126.77p.
Carr’s also reassured the market that trading in the new financial year has started in line with management expectations, emphasising the resilience of its diversified business.
Yet broker Shore Capital downgraded its forecasts to reflect the impacts of Brexit and Covid-19 uncertainties on Carr’s end-markets. This includes the important US cattle market, as well as to account for lower investment across the oil and gas industry.
STRENGTH IN DIVERSITY
Carr’s diversified business encompasses everything from the supply of feed blocks for livestock to the design and manufacture of bespoke equipment for the nuclear, defence, petrochemical, oil and gas, pharmaceutical and renewable energy industries.
Results for a challenging year ended 29 August 2020 were slightly ahead of the expectations massaged down in March due to testing agricultural market conditions and a delay to engineering contracts in Asia.
On revenue down 2% to £395.6 million, Carr’s churned out adjusted pre-tax profits of £14.9 million, down 17.4% year-on-year yet comfortably ahead of the £14.2 million forecast by Shore Capital.
Drawing confidence from a robust financial position and the ongoing demand across the majority of markets for its essential products and services, Carr’s also held the total dividend at 4.75p.
The company’s robust performance was driven by a strong second half in the Agriculture division as market conditions began to recover following a difficult first half characterised by unseasonal weather in the UK and USA and a squeeze on farmers’ incomes.
Unfortunately, the performance in the Engineering business was below the board’s revised expectations given contract phasing/delays, difficulty in gaining physical site access across its nuclear and defence projects and lower investment in the oil and gas sector amid a weakened oil price.
‘The global economy has been dominated by COVID-19, creating uncertainty and making forecasts difficult,’ explained chairman Peter Page. ‘Nevertheless, the group is well positioned as the agriculture sector remains crucial in supplying raw materials and ingredients to the food chain, and our engineering businesses are predominantly involved in government funded contracts in the nuclear sector.
‘Trading in the new financial year has started in line with the board’s expectations. Whilst uncertainties remain in the broader economic environment, the Board is confident about the prospects of our business in the medium term.’
THE SHORE CAPITAL VIEW
Shore Capital has rebased its estimates, but the broker still forecasts a return to pre-tax profit growth to the tune of £15.6 million for full year 2021, rising to £16.5 million in fiscal 2022.
The broker believes Carr’s has ‘adapted well given the situation and remains in a robust position both operationally and financially to navigate through difficult times following prior and continued investment across the business.’
Shore Capital also takes some comfort that Carr’s has ‘a global and diverse business model within agriculture and thus should mitigate any negative impact created by the Brexit uncertainty’, which continues to remain for Carr’s customers and certain supply chains.
‘It would be welcoming news if there is further clarity over the UK’s future which would bring greater confidence and stability back into customers and the market,’ concluded Shore Capital.