Carr’s Group PLC (LON:CARRC) trading update confirms that management’s strategy of innovation, investment and internationalisation is able to counter challenges in the UK dairy market. A new £48m framework agreement from Sellafield underpins growth for the UK Engineering business despite continued weakness in the oil and gas sector. FY16 trading is in line with management expectations and we leave our estimates and indicative valuation of 197p unchanged.
Diversification is protection from market challenges
The Agriculture division is performing better than management expected as excellent volume growth in US feedblock sales, supported by previous investment, is combatting continued weakness in the UK agriculture, especially dairy, sector. Retail sales in the Country Store network are up vs FY15 as are the volumes of oil sold. This outperformance balances underperformance in the Engineering division where utilisation levels in the UK manufacturing business were low because of weakness in the oil and gas sector and customer-triggered delays in starting some of the new nuclear projects. The Food division performed well. Previous investment in a new mill in Kirkcaldy and improvements at Silloth are helping it win new customers while expanding the activity undertaken for established ones.
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