Shares in vehicle and defence equipment manufacturer GKN (GKN) could prove a beneficiary of Britain’s weaker currency when it reports results tomorrow (Tuesday 23 February).
Full year underlying earnings per share (EPS) forecasts were upgraded by 5% to 24.2p because of currency fluctuations when analysts at RBC Capital Markets reviewed their forecasts in late January.
Sterling’s dip today, falling more than two cents against the dollar to $1.417 amid heightened uncertainty around Britain’s membership of the European Union, is helping the stock 3.2% higher at 288p in morning trading.
‘We like GKN’s end-market exposures and find the shares attractive despite having performed well versus UK peers recently,’ writes analyst Andrew Carter in a 25 January 2016 research note.
‘We expect [sterling] weakness to boost EPS and have increased our forecasts by ~5%.’
Double digit EPS growth is forecast at GKN in the next two years with forecasts of 26.7p in 2016 and 29.6p in 2017. GKN’s year-end is 31 December.
GKN has typically been seen as a value stock in the UK industrial goods sector because of the highly cyclical nature of its automotive division and a large pension deficit.
GKN is on the hook for a £1.5 deficit in its defined benefit scheme.
Another key risk is GKN’s Driveline China business. The high margin unit could be hit if the world's second-largest economy's auto market were to slow.
Consensus estimates for EPS tomorow are 26.3p, according to data from Morningstar.