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Rotork's self-help action reassures investors

Actions helped the dependable valve maker beat analyst expectations
February 27, 2017

Demand for Rotork's (ROR) valve actuators and gearboxes continued to be adversely impacted by the volatile energy sector in 2016. While the oil and gas market, which accounts for over half of group revenues, stabilised somewhat in the latter half of the year, the persistent fluctuation of West Texas Intermediate prices ensured that its customers cautiously refrained from making large-scale investments.

IC TIP: Hold at 243p

As has come to be expected from Rotork, these difficult challenges were dealt with fairly effectively. The engineer's adjusted operating margin tightened by 250 basis points during the period to a respectable 20.4 per cent, beating analyst expectations and triggering a 3 per cent rise in Rotork's share price. Launching new solutions designed to help cash-strapped customers reduce their plant costs, while aggressively cutting its own overheads, limited the damage caused by lower volumes and the acquisition of less profitable product ranges.

Despite generating a better than expected £9.2m of cost savings during 2016, management reckons there's still room to save a further £4.2m in the year ahead. These measures should continue to protect Rotork's profits, at least until oil prices stabilise and recent speculation about new investment projects become a reality.

ROTORK (ROR)
ORD PRICE:243pMARKET VALUE:£2,114bn
TOUCH:241-242p12-MONTH HIGH:269pLOW: 159p 
DIVIDEND YIELD:2.1%PE RATIO:31
NET ASSET VALUE:50p*NET DEBT:13%

Year to 31 DecTurnover (£m)Pre-tax profit (£m)Earnings per share (p)Dividend per share (p)
201251212410343.0
201357813811548.1
2014†59514111.95.0
20155461028.65.1
2016590917.75.1
% change+8-11-10+1

Ex-div: 6 Apr

Payment: 15 May

*Includes intangible assets of £360m, or 41p a share †EPS and DPS restated to reflect subdivision of 5p ordinary shares into 0.5p ordinary shares

Broker Barclays expects adjusted pre-tax 2017 profit of £131.2m and EPS of 11.1p, up from £117.9m and 10p last year.