Join our community of smart investors

Avon milks demand growth

Smart investment paved the way for another year of impressive profit growth and cash generation.
November 20, 2015

Avon Rubber (AVON) surprised investors by releasing its results for the year to September a day early. But that didn't mean the protection and dairy specialist had something to hide, as years of product development yielded further progress against increasingly tough comparators.

IC TIP: Hold at 1089p

Adjusted operating profit leapt 19 per cent, or 13 per cent if you exclude the positive effect of a strong US dollar. Much of the gain came from the group's core protection and defence unit, where profit soared thanks to price increases under a long-term contract with the Department of Defence as well as efficiencies. The division's revenue rose 7 per cent.

Yet sales in the group's dairy unit climbed even faster, by 11 per cent. That was achieved despite falling milk prices, which impacted the spending power of farmers in the second half. Fortunately, a strong showing from Avon's 'cluster exchange service', which combines milking-equipment hire, cleaning and replacement, more than compensated, together with robust demand for higher-margin Milkrite technology.

Looking ahead, management is confident that the dairy business, enhanced by new technology and cross-selling opportunities following the recent acquisition of InterPuls, will continue to thrive as milk prices recover. It also expects more gas mask orders from the US government as newly launched products give it an increasing edge over competitors.

Broker Arden Partners forecasts adjusted EPS of 54.1p for the year to September 2016, down from 56.1p in FY2015.

AVON RUBBER (AVON)
ORD PRICE:1,089pMARKET VALUE:£338m
TOUCH:1,051-1,089p12-MONTH HIGH:1,180pLOW: 657p
DIVIDEND YIELD:0.7%PE RATIO:22
NET ASSET VALUE:136p*NET DEBT:31%

Year to 30 SepTurnover (£m)Pre-tax profit (£m)Earnings per share (p)Dividend per share (p)
201110810.225.23.00
201210711.026.93.60
201312512.430.04.32
201412513.936.25.61
201513417.850.47.29
% change+8+29+39+30

Ex-div: 18 Feb

Payment: 18 Mar

*Includes intangible assets of £41.3m, or 133p a share