Engineering firm Rotork (ROR) sinks 8.4% to 271.3p as it warns revenue growth will slow in 2019 (after a strong showing in 2018) thanks to macroeconomic uncertainty.
The Bath-headquartered company designs and makes industrial flow control equipment. Because they share a West Country base and a reputation as quality operators in the metal bashing space, Rotork is often paired with Spirax-Sarco (SPX).
However, the latter arguably has more diverse end markets and definitely has a more consistent recent track record. This is reflected in the share prices of the respective companies. In the last five years Rotork’s share price is almost exactly flat despite considerable volatility in the interim, while Spirax is up 119%.
OIL EXPOSURE CAUSES HEADACHES
Among the challenges for Rotork is its substantial exposure to the oil and gas industry (just over 50% of revenue in 2018) which endured a cyclical downturn from the middle of 2014 until 2018 when spending began to ramp up again.
READ MORE ABOUT ROTORK HERE
This helps explain the strong growth evident in today’s numbers with revenue up 11.3%, adjusted operating profit up 14.8% and the company returning to a net cash position of £43.6m.
However, the exposure to the oil price means volatility and with crude retreating from its highs it is no surprise the company only sees ‘modest’ sales growth in 2019.
The company says it has a comprehensive plan to return Rotork to the levels of growth and margin performance it previously experienced ‘and to do this on a sustainable basis throughout the cycle’.
This is likely to prove a tough task, although the strong balance sheet could enable management to support this process through acquisitions.
