The FY18 results for Carr’s Group show that it has delivered the promised recovery in both divisions. This is the result of (1) market conditions which have boosted demand for feed blocks in the US and a wide range of agricultural inputs in the UK; and (2) prior year investment, for example in feed block production capacity and in acquisitions. Noting that the FY18 performance was ahead of our estimates, we revise our FY19 and FY20 forecasts upwards and raise our indicative valuation by 4p/share to 182p/share.
Group FY18 revenues rose by 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. This was ahead of our £377.4m estimates, reflecting commodity price inflation and a stronger than expected recovery in demand for US feed blocks. Adjusted pre-exceptional PBT grew by 48.8% to £17.7m, also ahead of our estimate (£16.6m), because of the stronger than expected performance in Agriculture, especially in the US. The dividend was raised by 0.5p to 4.5p/share, ahead of our 4.3p/share estimate.
We expect these positive growth trends to continue. The UK agriculture industry remains positive and there is still potential for growth in the US following the opening of a new feed block facility earlier this year. The acquisition of Animax, with its complementary animal health products, should provide an additional boost. 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 augur well.
Our updated DCF analysis gives an indicative value of 182p/share (previously 178p). At the current share price, Carr’s is trading below its peers with regards to mean EV/EBITDA (10.5x vs 8.3x) and mean P/E (10.2x vs 13.2x) for the year ending August 2019e. Further confirmation of sustained recovery in both the US feed block market and Engineering should help close the valuation gap.