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Fenner drives down costs

The industrial conveyor belt manufacturer continues to struggle against a backdrop of declining commodity prices
April 22, 2015

Plummeting commodity prices continue to hurt conveyor belting and polymer products group Fenner (FENR). Its core Engineered Conveyor Solutions (ECS) unit, which sells conveyor belts for the removal of coal from mines, saw its sales slide 9 per cent and underlying operating profit almost halve as low coal and iron ore prices prompted clients to slash their investment budgets.

IC TIP: Sell at 209p

Fenner has followed the lead of the mining industry in reducing its operating costs and capital spending. Management says reducing overheads has so far yielded savings of £9m a year, and net cash from operations jumped in the first half, despite lower profits.

Thankfully, operations ran more smoothly for the group's Advanced Engineered Products (AEP) division. Selling niche products such as plastic seals, bearings and pipes to a bewildering array of industries yielded sales growth of 7 per cent and an 11 per cent jump in underlying operating profit to £19.4m - more than that generated by ECS for the first time.

Healthy medical markets and an immediate contribution from January's acquisition of blood management, bioprocessing and cell therapy manufacturer Charter Medical helped bring home the bacon at AEP. Oil and gas operations also held up, accounting for 30 per cent sales, although management notes that order rates have started to decline.

Broker N+1 Singer expects adjusted pre-tax profit of £49.8m for the full year, giving EPS of 17.8p, down from £63.9m and 22.4p.

FENNER (FENR)
ORD PRICE:209pMARKET VALUE:£405m
TOUCH:208-209p12-MONTH HIGH:421pLOW: 181p
DIVIDEND YIELD:5.7%PE RATIO:18
NET ASSET VALUE:149p*NET DEBT:53%

Half-year to 28 FebTurnover (£m)Pre-tax profit (£m)Earnings per share (p)Dividend per share (p)
201436017.67.54.0
2015348-5.1-3.94.0
% change-3-129-152 -

Ex-div: 30 Jul

Payment: 7 Sep

*Includes intangible assets of £207.5m, or 107p a share