Agriculture-to-engineering combine Carr’s (CARR) has cultivated a better than expected half year performance, reflecting a recovery in its engineering division and a good performance in its agriculture arm.

Chief executive Tim Davies now expects full year profit will be ‘slightly ahead’ of management expectations, helping to trigger a 10.7% share price hike to 152p.

The Carlisle-headquartered company is starting to see confidence return to the UK farming industry. That will be a relief to shareholders who have had to endure a volatile share price since late 2017.

Carrs - APRIL 2018

Carr’s has been fighting back from a profit slump caused by weaker demand in the US feed market and a major engineering contract delay.

In JanuaryShares urged investors to buy the shares at 142p, as we were encouraged by a first half update (9 Jan) highlighting improving performance in both its agriculture and engineering divisions.

WHAT DOES CARR’S DO?

Carr’s offers a compelling play on the agri-tech theme. It supplies value-added products and solutions to customers around the world.

Its agriculture division makes and supplies feed blocks for livestock, farm machinery; and it runs a UK network of rural stores.

The engineering arm makes specialist equipment for use in the nuclear, petrochemical, oil and gas, pharmaceutical, process and renewable energy industries.

WHAT DO THE LATEST RESULTS SHOW?

Strong results for the six months to 3 March 2018 are both ahead of the prior year and management expectations.

Pre-tax profit is up 22% to £10.9m, turnover is 13.2% ahead at £200.1m, and shareholders are being treated to a 13.2% hike in the dividend to 1.075p.

In the engineering arm, operating profit surged over 380% higher to £1.4m. The division has bounced back from 2017’s contract-delay-driven difficulties.

Carr’s has acquired and integrated Germany engineer Staber and also says the integration of $20m acquisition NuVision, an engineer bringing a foothold in the main nuclear markets of the US, is proceeding to plan.

‘Our engineering division has been significantly enhanced by the recent acquisitions and the order books across our businesses remain strong,’ insists Davies.

‘We are greatly encouraged by the opportunities apparent within the division, particularly in China and the USA, and have confidence in the division’s prospects.’

AGRICULTURE IMPROVEMENTS

Recovery in the US agriculture market was helped by cattle prices continuing to improve, with feed block volumes 11% ahead.

Furthermore, the UK agriculture business has continued its strong start to the year – Carr’s feed block sales and fuel volumes are ahead year-on-year – as farm incomes steadily improve.

‘In UK Agriculture, we now have greater visibility on the impact Brexit may have in relation to direct payments to farmers in the near term,’ says Davies, ‘although uncertainty remains on the issue of trade agreements both within the EU and the rest of the world.

‘The clarity relating to direct support, together with improving farm incomes, means we are starting to see renewed confidence in the outlook for the industry.’

ANALYSTS UPGRADE EARNINGS FORECASTS

‘Management is quite positive on the outlook for the business, guiding to a full year outturn that is likely to be slightly ahead of market expectations,’ says Shore Capital.

For the year to August 2018, ‘we are currently forecasting pre-tax profit of £14.8m which we expect to upgrade by circa £0.5m’, adds the broker.

Investec Securities modestly upgrades its price target from 195p to 198p.

Analyst Nicola Mallard nudges up her full year pre-tax profit forecast from £15.2m to £15.6m, leaving Carr’s on course to deliver record profit up 37% year-on-year, also projecting a dividend increase from 4p to 4.3p.


Issue Date: 16 Apr 2018