Popular retail investor stock Avon Rubber (AVON) saw its share price fall more than 4% on Wednesday as profits were almost wiped out after taking £17.8 million in one-off costs from its Team Wendy acquisition, which completed in early November.
The FTSE 250 stock lost 195p to £44.30 after unveiling statutory pre-tax profit fell to £0.5 million from £8.7 million for the year to 30 September 2020.
Avon Rubber management urged investors to judge the profits performance on an adjusted basis, saying that the measure provides ‘a more useful comparison of business trends and performance’.
Adjusted results exclude exceptional items, costs associated with acquisitions, defined benefit pension scheme costs, the amortisation of acquired intangibles and discontinued operations.
On this metric Avon saw pre-tax profits jumpy 27% to £28.2 million, advancing 8.8% before acquisition benefits. Revenues jumped 30.8% to £168 million.
A GOLDEN YEAR
‘Very few firms will look back on 2020 with as much satisfaction - from a purely business point of view - as Avon Rubber, after three major transactions, an underlying increase in profit, a big hike in the dividend and an increase to its net cash pile, so investors may be a bit confused as to why the shares are down so much’, said Russ Mould, investment director at platform AJ Bell.
The final dividend was hiked 30% to 18.06p, giving shareholders a 27.08p payout for the year, also up 30%.
The military equipment maker talked up the Team Wendy deal as a lever to ‘further accelerate growth’, pointing out an opening order book worth $101.7 million (£79.8 million) for the new fiscal year, providing ‘excellent visibility and confidence for 2021’, the company said.
BARGAIN HUNTING INVESTORS
‘For the moment at least, investors seem to be looking for cheap, recovery stocks rather than highly-priced havens which offer greater earnings reliability, like Avon Rubber’, reasoned AJ Bell’s Mould.
‘The theory is the long-awaited vaccines will prompt a bounce in economic activity, with the result that corporate profits and dividends will rise faster in 2021 at those firms whose business model suffered the most at the hands of the pandemic in 2020’, said the investment director.
Avon Rubber shares have rallied strongly through most of 2020, more than doubling from £20.90 and setting a new all-time high of £46.25 during last month’s UK market rally, putting the stock on a 2021 price to earnings multiple of more than 35.
