Avon Rubber beats expectations again

Avon Rubber (AIM: AVON) has delivered another solid performance with its Final Year Results this morning.  It beat consensus expectations across the board with EBITDA coming in at £30.8m (£0.8m above the top of the analyst range), PBT reported at 4% above consensus and EPS a encouraging 9% higher.

The big driver of the beat was the Dairy business and FX tailwinds but performance was robust in the Protection & Defence (P&D) division as well. P&D accounts for just over 70% of group revenues and was relatively flat year-on-year with 2% revenue growth with a slight increase in gross margin. Dairy makes up the remainding 30% of group revenues and rose 18% following the acquisition of InterPuls, with margins remaining stable.

Cash generation was impressive over the year with increased profitability and working capital inflows leading to a swing from a net debt position at the start of the year of £13.2m to a net cash position at year-end of £2m.

The majority of AVON's earning are in US$ which has given the Group a translational boost. According to Broker Arden Partners' thorough note this morning:

"With about 80% of sales in $, mostly satisfied from the Group’s US facilities, reported £ profits are sensitive to the £/$ translation rate, with a 5c move against £ having a £600,000 impact on the Group’s PBT"

Arden goes on to conclude that the outlook remains positive for AVON:

"multiple long term growth drivers that have helped Avon deliver the strong results seen in the last few years remain in place for both P&D and Dairy, and the balance sheet provides scope to make bolt-on acquisitions to supplement growth."

The excellent Sanjay Jha of Panmure Gordon also published an upbeat note this morning highlighting the better than expected results as well as his view that "Milk prices appear to have bottomed, so we expect a strong recovery in underlying sales."

Finally, another quality city Broker, N+1 Singer, also put out a positive note following the results but also flagged a minor note of caution relating to the upcoming Management change:

"We anticipate making modest upgrades to our P&L forecasts but a more substantial upgrade to net cash. In our view growth prospects strengthen in FY17."

 

"We remain positive ... although there is some uncertainty due to imminent management change following the resignation of FD Andrew Lewis."

Shares are up nearly 4% today in early trading and looking at valuation, the current 2017 consensus according to the FT is 58p putting the shares on a 17x PE ratio. Although it appears from the positive reports today that analyst forecasts may be adjusted up after this morning's beat.