The recovery in both US feed block sales and the UK manufacturing businesses noted at Carr’s Group’s AGM in January has continued through to the end of June. As both divisions are trading slightly ahead of management’s expectations at the interim stage, we raise our estimates again and revise our indicative valuation from 169p/share to 178p/share.
As noted at the AGM and the interims, UK farming sentiment remains positive, resulting in feed volumes, retail sales, machinery sales and fuel sales all ahead of the prior year. The acquisition of Pearson Farm Supplies in October 2017 also benefited both retail sales and feed volumes. US feed block volumes continued to recover as cattle prices for producers improved. A favourable environment for dairy producers in Germany supported a further increase in feed block volumes from the German joint venture.
Work continues on the significant fabrication contract that was delayed until almost the end of FY17. The precision engineering business is benefiting from a recovery and stabilisation of the oil price, which happily coincides with a strengthened management team, resulting in more effective business development and improved operating efficiencies. The remote handling businesses are also performing well and the programme to create additional capacity in Germany is nearing completion. NuVision’s order book is looking good, having secured a major contract to mitigate stress corrosion cracking in welded pipes in certain nuclear plants. NuVision was acquired in August 2017 and has integrated well.
Following the estimates upgrade, our updated DCF analysis gives an indicative value of 178p/share (previously 169p). At the current share price, Carr’s is trading below its peers with regards to mean P/E (12.6x vs. 14.5x) for the year ending August 2018. Continued recovery in the US feed block market and further confirmation of the Engineering upturn should help close the valuation gap.
