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Strong car market boosts GKN

Strong car and automotive markets have helped GKN battle negative currency effects
July 30, 2014

Shares in GKN (GKN) have struggled to maintain their previous drive this year, but that changed with a sturdy set of half-year figures. Organic sales growth of 6 per cent encouraged investors to bid the shares up 7 per cent on the day of the announcement.

IC TIP: Buy at 365p

The car parts division, Driveline, which accounts for almost half of group sales, performed particularly well, with organic sales up 11 per cent and trading profit rising 35 per cent to £142m. The unit is benefitting not just from growth in the global car market - global production rose 4 per cent in the first half, led by China - but also higher sales per vehicle. GKN's powder mettalurgy division, which also makes car parts, but using a novel technology known as sintering, also benefitted from the buoyant market.

Meanwhile, GKN’s commercial aerospace unit, which sells components to the thriving duopoly of Airbus and Boeing, saw organic growth of 5 per cent. But the smaller defence and agriculture businesses struggled, with organic sales falling 2 and 9 per cent respectively.

The group's headline figures also suffered from currency headwinds, which knocked £24m off pre-tax profits. "Comparatives do get tougher in the second half, but on the whole we are expecting no major changes from the first half," says chief executive Nigel Stein. Broker Numis is forecasting full-year pre-tax profits of £545m, giving EPS of 26.1p (from £523m and 25.8p last year).

GKN (GKN)

ORD PRICE:365pMARKET VALUE:£ 6.0bn
TOUCH:364.7 - 364.9p12-MONTH HIGH:418pLOW: 322p
DIVIDEND YIELD:2.2%PE RATIO:12
NET ASSET VALUE:103p*NET DEBT:48%

Half-year to 30 JunTurnover (£bn) Pre-tax profit (£m)Earnings per share (p)Dividend per share (p)
20133.651275.52.6
20143.5722411.22.8
% change-2+76+104+8

Ex-div: 13 Aug

Payment: 22 Sep

*Including intangible assets of £1.43bn or 87p a share