The fall should probably be seen in the context of a near 60% rise in the past 12 months, concerns over the impact of weakness in the military aerospace industry and a warning that 'adverse currency could provide a significant translational headwind'.
The £6.5 billion cap derives significant revenues in dollars and euros but reports its results in sterling. This means the strength of the pound relative to other global currencies could be a drag on reported earnings this year.
GKN makes chassis and axles for car makers and airframes for the likes of Airbus and Boeing. It posts pre-tax profit of £578 million – up 17% year-on-year and north of the consensus forecast for £565 million. Return on invested capital (RoIC) slips slightly from 18% to 17.3% but free cash flow is up 54% to £346 million and net debt – at £732 million – is down £139 million on its 2012 level.
In 2014 the company sees slight growth in its Aerospace division – new commercial aircraft programmes compensating for a slowdown in military spend – and believes forecast 3% growth in global light vehicle production should boost its Driveline and Powder Metallurgy businesses. It is less bullish on its Land Systems arm due to softening agricultural equipment markets in Europe and North America.
Investec analyst Chris Dyett describes the numbers as a 'big tick in the box' but puts his 420p price target and 'buy' rating under review. He comments: 'The stock has been strong in recent months and for the time being further upside looks more limited but longer term opportunities exist particularly for the Driveline margin, which would drive outperformance. We suspect M&A remains under consideration. We will review our valuation and recommendation, but remain gently positive.'