Avon Rubber’s trading statement (2 February) was reassuringly upbeat with Dairy benefiting from a stronger milk price and the Protection & Defence division continuing to see encouraging order intake. International orders for Protection & Defence are progressing, although final timing remains unpredictable. Cash generation was particularly strong, due to receiving a large customer receipt on the last day of the quarter, giving the group a net cash position of £11.1m.
FY17 has got off to a strong start, with both the Dairy and the Protection & Defence divisions reporting organic growth and a higher deliverable order book for FY17 compared to FY16. Underlying trading conditions have improved in Dairy. After a challenging 2016, the milk price has gradually started to increase since last September. According to the latestUS data, the average price was $18.80/cwt in December 2016 which is up 30% from the year’s low in May of $14.50/cwt.
It is reassuring that the company’s major recent acquisitions are performing well. In Protection & Defence, the fire business continues to grow in Europe and the US, led by Argus thermal imaging camera sales. Avon Rubber acquired Argus (part of e2v) in October 2015 for £3.3m, aiming to strengthen its product range in the fire and first responder market. In the Dairy division, the introduction of InterPuls to the US market is making “encouraging progress”. Avon’s acquisition of InterPuls (August 2015) made the Dairy division a leading international provider of milking point technology, providing complete teat-to-pipeline solutions for the sector.
Avon Rubber has gained a reputation for solid results so it is encouraging to see this latest statement continuing the long-running trend. We maintain our estimates which we upgraded in November 2016 in part to reflect the 17c swing in the £/US$ FX rates. Half year results will be announced on 16 May 2017.