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Low & Bonar facing headwinds

A fall in raw material costs are expected to reverse in the second half
July 6, 2015

Lower raw material prices for Low & Bonar (LWB) meant that despite a dip in turnover, first-half profits were significantly higher for the specialist materials group, and adjusted operating margins moved up from 5.9 per cent to 6.8 per cent. However, the group indicated raw material polymer prices may start to creep back up in the second half.

IC TIP: Hold at 68p

Most of the operating divisions, including coated fabrics, delivered a solid performance, but specialist products for the building trade particularly pushed ahead. Constant-currency profits here rose by 13 per cent to £2.6m, boosted by strong demand for roofing related products in the US. With transport and interior products, profits jumped 30 per cent to £5.2m. Sales to China have been somewhat slow to build but continue to increase overall as US customer transplants scale up.

The group's joint venture in Saudi Arabia was also slow to gain traction, and a loss is expected for the full-year, with sales growth not expected to to cover the cost of setting up the production facility. In civil engineering, profits slid from £1.2m to £0.3m, although steps are in place to improve the management structure.

Analysts at Peel Hunt have maintained their forecasts for the full-year to November at adjusted pre-tax profits of £26m and EPS of 5.7p (from £25.2m and 5.4p in 2014).

LOW & BONAR (LWB)
ORD PRICE:68pMARKET VALUE:£223m
TOUCH:65-69p12-MONTH HIGH:91pLOW: 44p
DIVIDEND YIELD:4.0%PE RATIO:17
NET ASSET VALUE:51p*NET DEBT:59%

Half-year to 31 MayTurnover (£m)Pre-tax profit (£m)Earnings per share (p)Dividend per share (p)
20141965.21.10.95
20151867.41.50.98
% change-5+42+39+3

Ex-div: 27 Aug

Payment: 24 Sep

*Includes intangible assets of £94m, or 29p a share