Carr’s Group PLC (LON:CARRC) has announced that the situation regarding demand for feed blocks in the US and utilisation in the Engineering division’s UK manufacturing operations continue to be problematic. Both were identified as potential issues in the January trading update. The overall improvement in the agricultural sector has continued, but an uplift in profitability in this activity is not expected to be sufficient to offset the shortfall elsewhere. We revise our estimates and reduce our indicative valuation, which is based on the medium- and long-term prospects for the group, from 161p/share to 158p/share.
Engineering margins affected by contract delays
In January management noted a significant delay with a contract for the UK Manufacturing business from the nuclear sector that had previously been expected to utilise a significant proportion of FY17 production capacity but would not begin until towards the year end. Management has achieved its goal of replacing much of this work with other contracts, but these are from the oil and gas sector and are therefore at a lower margin than the work they replace. The Materials Handling activity is trading ahead of expectations, winning major contracts in China.
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