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Morgan is rationalising at the 'lower end of the cycle'

The carbon and ceramic products manufacturer has been moving through a challenging period in key markets, but a reorganisation programme promises to boost performance
July 27, 2016

If you're planning on restructuring your business in a bid to drive efficiencies, and you want to avoid maximum disruption, then you should probably do so when your markets are in a downtrend. The latest half-year report from Morgan Advanced Materials (MGAM) details a rationalisation programme stretching from Swansea to Shanghai, which has been driven while the carbon and ceramic products manufacturer has been operating at the "lower end of the cycle" in key markets, according to chief executive Peter Raby. So while underlying operating profit contracted 13.9 per cent at constant currencies, the market has responded positively to the group's strategy to drive margins at the electrical carbon and seals segment, as well as the apparent stabilisation of trading conditions during the period under review.

IC TIP: Buy at 270p

That follows a marked decline during the second half of 2015, with trading faltering across automotive, oil and gas and industrial applications, although demand for the group's thermal products held up well. And this has continued through to the end of June, reflected by a 3.8 per cent improvement in the latter segment's top line from a year ago.

Analysts at Investec are staying positive, giving adjusted profit and EPS estimates of £75.4m and 17p, respectively, for the December year-end, against £90.1m and 20.6p for 2015.

MORGAN ADVANCED MATERIALS (MGAM)
ORD PRICE:270pMARKET VALUE:£769m
TOUCH:269p-270p12-MONTH HIGH:375pLOW: 188p
DIVIDEND YIELD:4.1%PE RATIO:25
NET ASSET VALUE:40p*NET DEBT:154%

Half-year to 30 JunTurnover (£m)Pre-tax profit (£m)Earnings per share (p)Dividend per share (p)
201546949.211.44.0
201647546.210.24.0
% change+1-6-11-

Ex-div: 3 Nov

Payment: 25 Nov

*Includes intangible assets of £243m, or 85p a share