Carr’s Group is building market-leading positions in high-value, growing sectors in global agricultural and engineering markets, increasing its international footprint and differentiating itself through innovative technologies such as low-moisture feed blocks and highly specialised robotic arms for use in hazardous environments such as the nuclear industry. This strategy delivered a 49% rise in adjusted PBT during FY18. It also reduces the group’s exposure to variations in UK weather and government farming policy.
Group FY18 revenues rose 16.5% year-on-year to £403.2m, reflecting a recovery in the US feed block and UK manufacturing businesses, a continuation of positive sentiment in the UK agriculture sector and strong order books for the remote handling businesses. Adjusted pre-exceptional PBT grew 48.8% to £17.7m as the recovery in both divisions was boosted by the dry UK summer, which raised demand for dairy feed. The dividend was raised by 0.5p to 4.5p per share. Our estimates have not changed since the upwards revision in November.
While it is good to note that sentiment in the UK agriculture industry remains positive despite uncertainty over future trade arrangements post-Brexit, Carr’s is not as dependent on this sector as some of its peers, with around half of its profits generated outside the UK. There is still potential for growth in the US agriculture market following the opening of a new feed block facility in Tennessee earlier this year. The Engineering order book is strong and recent sales of remote handling equipment from the German business through NuVision’s sales contacts in the US bode well. The acquisition of Animax in September 2018 (for up to £8.5m cash) with its complementary animal health products, should help boost agricultural sales in the UK and elsewhere.
Our DCF analysis gives an indicative value of 182p/share (unchanged). At the current share price, Carr’s is trading below its peers with regards to mean EV/EBITDA (10.4x vs 8.2x) and mean P/E (9.9x vs 14.0x) for the year ending August 2019. Clarity on trading arrangements post-Brexit and news of Engineering orders should help close the valuation gap.