Carr's Milling Industries is an odd mix. For example, putting the production of Crystalyx feed supplements for cattle and robotic handling equipment for the nuclear industry into the same group has no obvious logic. Yet this brings investors an opportunity – it's the main reason why its shares are cheap.
- Strong demand for agricultural products
- Engineering business performing well
- 'Conglomerate' tag depresses rating
- Flour milling continues to struggle
- Agricultural sales at the mercy of the weather
Demand for the group's specialist agricultural products – in particular its animal feeds, which improve yields for farmers – is strong. Revenues from the agriculture division – by far the biggest part of Carr's – grew 12 per cent to £147m and profits by 19 per cent to £5.2m in the six months to the end of March, even though the mild winter in the UK was no help. Farmers kept their livestock outdoors for longer and needed less of the compound feeds that Carr's specialises in. But growth overseas helped offset the UK's weakness. Sales of Carr's feed blocks into the US, Europe and New Zealand all grew and there is scope for further improvement in the coming year as the group's new AminoMax food supplement plant in New York is now up and running after a delay.
In the UK, Carr's also sells agricultural supplies, including fuel oils, to farmers and country dwellers. Some of the funds from the sale of its fertiliser business have been ploughed into new fuel depots at Hexam and Cockermouth and a new retail outlet in Stirling. Despite a tough economic environment and mild winter, Carr's maintained sales in the fuel business and grew its retail sales.
CARR'S MILLING INDUSTRIES (CRM) | ||||
|---|---|---|---|---|
| ORD PRICE: | 875p | MARKET VALUE: | £78m | |
| TOUCH: | 850-875p | 12-MONTH HIGH/LOW: | 900p | 700p |
| DIVIDEND YIELD: | 3.6% | PE RATIO: | 9 | |
| NET ASSET VALUE: | 660p | NET CASH: | £1.6m | |
| Year to 31 Aug | Turnover (£m) | Pre-tax profit (£m) | Earnings per share (p) | Dividend per share (p) |
|---|---|---|---|---|
| 2009 | 350 | 7.0 | 50.4 | 23.0 |
| 2010 | 298 | 7.4 | 51.9 | 24.0 |
| 2011 | 373 | 10.0 | 77.0 | 26.0 |
| 2012* | 388 | 12.6 | 92.4 | 29.0 |
| 2013* | 398 | 13.0 | 95.8 | 30.0 |
| % change | +3 | +3 | +4 | +3 |
Normal market size: 300 Matched bargain trading Beta: 0.2 *Investec forecasts | ||||
But the group's flour-milling operation suffered. Sales were 8 per cent higher at £41m, but margins were hit by overcapacity and high wheat prices, so profits slumped by 39 per cent to just £400,000. Management does not expect a rapid improvement, but hopes that further consolidation in the industry may improve conditions.
The star performer was specialist engineering, which increased revenues 33 per cent to £7.4m and profits by 175 per cent to £1.6m in the first half. Engineering remains small, but its prospects are strong. The Bendalls division sells special tanks and vessels to the UK and US nuclear industries and the offshore oil and gas industry, and the MSM business supplies critical parts to Sellafield. The other part of engineering, German remote handling and robotics engineer Walischmiller, had a strong first half supplying equipment for nuclear decommissioning and its order book has grown to €40m (£33m). Carr's engineering business is an anomaly, but a nice one to have. Management says it is keen to exploit its potential for some time yet before it would consider selling the division.
