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Tough conditions fail to push Senior off course

The aerospace engineering group was helped by positive currency movements and acquisitions
August 1, 2016

Even a hefty 28 per cent constant-currency fall in operating profits at aerospace engineer Senior (SNR) failed to prevent its shares rocketing up the stock market runway. The share price rose as much as 17 per cent following its half-year results - probably because there are some legitimate reasons for the profit fall.

IC TIP: Hold at 219p

Exceptional costs included a £10m exceptional amortisation charge linked to its December acquisition of Steico and a £23m reinvestment in the business. Chief executive David Squires said it was important "not to cut [reinvestment] to the bone" during tough times, to ensure the business is well-placed once trading conditions improve.

The aerospace division, the largest by revenue and profits, is heavily exposed to the commercial airline market. The Steico acquisition boosted operating profits there, but, excluding bolt-on deals, the division still grew 9.6 per cent. Mr Squires said data showed global air traffic growth was historically stable and should keep growing in the near term. Group commercial airline orders for the next three years are double the market level, he added.

The flexonics division struggled, though, with adjusted operating profit more than halving to £10.8m. Its dependency on the oil and gas sector and trucking industries in the US held the division back, although management mitigated some of the damage via further cost-cutting.

Analysts at Jefferies nudged up their EPS forecasts to 16.4p for the year to December 2016, compared with 18.8p in 2015.

SENIOR (SNR)
ORD PRICE:219.5pMARKET VALUE:£921m
TOUCH:219.5-220p12-MONTH HIGH:303pLOW: 167p
DIVIDEND YIELD:2.9%PE RATIO:23
NET ASSET VALUE:112p*NET DEBT:44%

Half-year to 30 JunTurnover (£m)Pre-tax profit (£m)Earnings per share (p)Dividend per share (p)
201543545.08.451.84
201645132.66.331.95
% change+4-28-25+6

Ex-div: 20 Oct

Payment: 30 Nov

*Includes intangible assets of £373m, or 89p a share