GKN (GKN) made an underlying pre-tax profit of £497m in 2012, up almost a fifth on last year, driven by fatter margins and record profits at all four divisions. That’s better than expected, thanks both to decent organic growth and smart acquisitions. Of course there are headwinds, yet cost-cutting and a thriving commercial aerospace business will easily offset weak car demand in Europe and falling military sales in the US. There will be sizeable contribution from Volvo Aero in 2013, too, guaranteeing another big year for the engineer.
Supplying drive shafts and other parts to the big car manufacturers generated about half of all sales last year - £3.2bn in all. Organic growth of 7 per cent at the Driveline division beat the market, too, although GKN admits forecast growth in light vehicle production of just 2 per cent this year will hit first half profits at Driveline and Powder Metallurgy. That’s why it’s spending £21m on cost-cutting - mostly redundancies in Germany and Japan - to generate annual savings of a similar amount.
It’s a different story at the aerospace division where broker UBS expects Volvo Aero to generate £713m of sales and £82m of cash profits in 2013. Currently, civil work generates 60 per cent of aerospace sales and growth of 15 per cent in 2012, driven by the Airbus A320, A330 and 787, easily offset a drop in production of the C-17 military transporter and F-15 and F-18 jets. A huge backlog of orders at Boeing and Airbus means commercial aerospace work will flood in this year, too. GKN has about £2m of kit on each 787, worth over £100m a year, and Boeing still expects to double output in the next year. What’s more, its rival, the Airbus A350, flies for the first time this year and each plane will generate £3m of sales for GKN. It has been cutting costs ahead of possible sequestration as well and about 80 per cent of its £300m sales to the US armed forces are on safer multi-year contracts.
UBS forecasts adjusted EPS of 24.7p for 2013 (2012: 23.6p).
GKN (GKN) | ||||
|---|---|---|---|---|
| ORD PRICE: | 260p | MARKET VALUE: | £4.24bn | |
| TOUCH: | 259-260p | 12-MONTH HIGH: | 267p | LOW: 171p |
| DIVIDEND YIELD: | 2.8% | PE RATIO: | 9 | |
| NET ASSET VALUE | 96p* | NET DEBT: | 45% | |
| Year to 31 Dec | Turnover (£bn) | Pre-tax profit (£m) | Earnings per share (p) | Dividend per share (p) |
|---|---|---|---|---|
| 2008 | 4.38 | -130 | -11.6 | 3.00 |
| 2009 | 4.22 | -54.0 | -3.20 | nil |
| 2010 | 5.08 | 345 | 19.6 | 5.00 |
| 2011 | 5.75 | 351 | 18.0 | 6.00 |
| 2012 | 6.51 | 588 | 30.2 | 7.20 |
| % change | +13 | +68 | +68 | +20 |
Ex-div: 10 Apr Payment: 20 May *Includes intangible assets of £1.54bn, or 94p per share | ||||
