No news is good news at Fenner

News of "satisfactory" trading and results "in line with expectations" wouldn't normally be anything to write home about. But in the case of conveyor belting and polymer products group Fenner (FENR), which shocked the market with a profit warning in May, a matter of weeks after a fairly optimistic half-year report, no news is good news.

Fenner is due to report results for the year ending 31 August on 11 November 2014. The numbers will reflect weak sentiment in the US coal industry and the loss of a key contract in Australia - the two key markets for its core Engineered Conveyor Solutions division, which sells conveyor belts for the removal of coal from mines. In its latest update, Fenner said it continued to "restructure its activities to suit local market conditions", meaning it will incur an exceptional charge in the second half. Net debt nonetheless remains flat on the previous year at £120m.

Meanwhile, its smaller Advanced Engineered Products (AEP) division continues to perform well. It sells niche products such as plastic seals, bearings and pipes to a bewildering array of industries, but management is particularly optimistic about growth opportunities in the oil and gas and medical sectors, which account for about two-fifths of sales. To support these, however, it has upped its spending on innovation and leadership, which may weigh on margins.

Numis Securities says...

Hold. Trading has stabilised since the May downgrades, but there's still no evidence of a recovery in key mining markets, specifically US coal. Any hopes of a revival look distant for now, as key US coal production statistics continue to show depressed levels of activity. On a more positive note, AEP continues to make progress, assisted by its exposure to oil and gas, particularly in the US. We expect this side of the business to be the key driver of earnings growth in the short term. The shares are trading at a discount to their UK engineering peers, and we hope earnings will once again make progress in the current financial year. Expect EPS of 22.7p for the year just gone, rising to 25.5p in 2014-15.

Canaccord Genuity says...

Buy. After a difficult period of currency and trading-induced downgrades, we believe Fenner's portfolio contains a good deal of value that is unreflected in the shares. The company has accepted that US coal is unlikely to recover for another year, but we believe that AEP, which is targeting 9 per cent top-line growth and 20 per cent margins, can provide a solid platform for Fenner to rebuild confidence. During this difficult period, the company has done well to trim its cost base. While net debt at £120m is higher than our £109m forecast, the ratio of net debt to cash profits is just 1.1, leaving scope for further bolt-on acquisitions. We expect adjusted EPS of 23.2p for the year to August, rising 13 per cent to 26.3p this year.