Avon Rubber (AVON) signalled that its annual results would exceed market expectations in an October update, and duly delivered with adjusted operating profit growth of 20 per cent. Cash conversion was also very strong for the rubber maker, enabling it to eliminate its debts and boost the dividend by 30 per cent.
Protection and Defence, Avon's core division that specialises in high-tech rubber gas masks, played a key role in this success, with order intake up by a quarter. The US Department of Defence (DoD) was once again its main customer, with four years left to run on a major contract and extra orders expected in 2015.
Despite federal budget cuts, chief executive Peter Slabbert told us that 2m US soldiers still require Avon's masks. What’s more, the company's long-standing relationship with the DoD enhances its reputation in the 60 other countries it now serves. Regions like the tension-ridden Middle East also offer higher margins.
Avon's smaller dairy division continued to increase its market share in Europe and North America, while following the defence segment into "extremely strong" emerging markets. Operating margins for the rubber parts used in milking machines rose by 160 basis points, boosted by an easier environment for dairy farmers.
Broker Investec upgraded its full-year pre-tax profit forecast by 3.5 per cent to £17.9m, giving EPS of 44.8p (up from £16.5m and 42.2p).
| AVON RUBBER (AVON) | ||||
|---|---|---|---|---|
| ORD PRICE: | 683p | MARKET VALUE: | £212m | |
| TOUCH: | 681-683p | 12-MONTH HIGH: | 685p | LOW: 560p |
| DIVIDEND YIELD: | 0.8% | PE RATIO: | 19 | |
| NET ASSET VALUE: | 81p* | NET CASH: | £2.9m | |
| Year to 30 Sep | Turnover (£m) | Pre-tax profit (£m) | Earnings per share (p) | Dividend per share (p) |
|---|---|---|---|---|
| 2010 | 118 | 7.13 | 15.2 | 1.50 |
| 2011 | 108 | 10.2 | 25.2 | 3.00 |
| 2012 | 107 | 11.0 | 26.9 | 3.60 |
| 2013 | 125 | 12.4 | 30.0 | 4.32 |
| 2014 | 125 | 13.9 | 36.2 | 5.61 |
| % change | - | +12 | +21 | +30 |
Ex-div: 19 Feb Payment: 20 Mar *Includes intangible assets of £17.2m, or 56p a share | ||||
