Disappointing H1 Results and a cautious outlook but dividend coverage still strong
Companies: Castings PLC
After a positive set of Results back in June that included a much welcomed 30p special dividend, today's half-year results are disappointing. The "softening in demand" from Casting's main customers that was flagged in the August AGM has "continued for the rest of the period". Also as previously reported:
"the machining business has seen a significant reduction in revenue following the end of a major contract"
Revenue is down 11% year-on-year to £58m, while H1 EPS fell 26% to 13p, and net cash generation dropped 17% to £8.8m.
Management flag replacement work but that this is not expected to add to earnings until 2017/18 onwards, whereas the "pre-production costs associated with this work, is impacting the current financial year".
"Whilst we do not anticipate any significant further reductions in output, we do not expect to see any improvement for the remainder of the financial year."
Furthermore, the CEO David Gawthorpe has announced he will be retiring at year-end (March 2017) and will be replaced internally as per the Group's succession plan by Adam Vicary, Managing Director of Castings Brownhills.
On the positive side, the interim dividend has still increased 5% compared to last year, continuing the long record of consistently growing its dividend. Furthermore, its dividend coverage still looks healthy. If Castings repeats its EPS performance of 13p per share in H2 then the full year would be c.26p, providing a coverage of c.2x.
Looking on Hargreaves Lansdown, it is clear to see Castings' robust dividend performance and coverage over time:
Shares are off over 8% this morning which is not a great surprise given the cautious and slightly negative outlook from Management. Looking at historic PE ratios, the latest multiple it trades on is c.11x and the dividend yield is c.3.4%.