Record year of profits
Carr's (L:CARRC) strategy of innovation, investment and internationalisation has delivered another record year of profits, despite challenging markets for all three divisions. We expect this strategy to mitigate the impact of continued weakness in the markets served, enabling the group to maintain profit at these record levels. We revise our estimates to reflect market conditions and see fair value at 199p/share (previously 203p/share).
Strategy delivers record pre-tax profits
Adjusted group profit before tax grew by 6% year-on-year to £18.1m, in line with our estimates. Strong profit growth in the Agriculture division was driven by international feed block sales, acquisitions and investment in the Country Store portfolio. Targeted investment in the Flour division supported sales volume growth and a modest improvement in divisional profit. Growth in these two divisions offset a reduction in Engineering profits caused by weak demand from the oil and gas sector. The 4% reduction in group revenues reflects lower commodity prices.
Strategy gives protection from market challenges
Industry analysts expect lower farmgate milk prices in the UK and the US to persist throughout FY16. We expect this to have a negative impact on demand for feed supplements and farm machinery and on feed margins, balancing growth in feed block demand in the US following redevelopment of the Nevada manufacturing facility. We expect changing consumer purchasing patterns and associated supply chain pressures to adversely affect margins in the Flour division. On the other hand, the Engineering division has reported a revival in contracts from the nuclear sector, which will more than compensate for continued weakness in the oil and gas sector, as nuclear-related work typically commands a higher margin. We revise our estimates to give a repeat of FY15’s record profit performance in FY16 rather than further growth.
To Read the Entire Report Please Click on the pdf File Below