Carr’s Group delivered a 7.0% increase in adjusted profit before tax during FY19 despite adverse weather conditions in both the US and the UK, which affected demand for feed blocks, animal feed and fuel. The profit growth was attributable to a strong performance from the Engineering division. We leave our FY20 and FY21 estimates broadly unchanged, nudge our indicative valuation up 6p to 190p/share and present FY22 estimates for the first time.
Group revenues were virtually unchanged year-on-year during FY19 at £403.9m, with commodity price inflation, the Animax acquisition in September 2018 and high utilisation levels in the Engineering businesses compensating for lower volumes of feed block and feed. Pre-exceptional PBT (excluding amortisation of acquired intangibles and non-recurring items) rose by 7.0% to £18.9m, primarily because of the performance improvement in the Engineering division. This was ahead of our £18.1m estimate, in part because of a better than expected performance from NW Total following its acquisition in June 2019. Net debt rose by £8.4m during FY19 to £23.8m at the year end. This is primarily attributable to a £5.0m increase in working capital requirements: £4.5m capex, £10.2m on acquisitions, including deferred consideration paid and £4.2m dividend payments.
Our estimates, which are broadly unchanged, show modest growth (2.5% in FY20 and 3.3% in FY21) in adjusted pre-tax profit. On the Agriculture side, we note the continued shift to high-margin branded product suitable for both domestic and international markets following the acquisition of Animax. On the Engineering side, we note that greater co-operation between activities has already helped the German robotics business win a US$8.5m contract in the US, which will benefit FY20, while the US operation won two significant Mechanical Stress Improvement Process contracts during FY19 which will primarily benefit FY21.
Our DCF analysis gives an indicative value of 190p/share (previously 184p). At the current share price, Carr’s is trading below its peers with regards to the mean EV/EBITDA multiple (6.9x vs 8.2x) and P/E multiple (8.9 vs 12.6x) for FY20e. Confirmation that Carr’s diversified business model can continue to address issues caused by Brexit uncertainty plus news of further Engineering orders should, in our view, help close the valuation gap compared with the mean.