There was an encouraging dose of déjà vu in Fenner's year-end results. Even after September's bullish update, the engineering group managed to beat analysts' expectations - paving the way for yet more profit upgrades.
That's because the company enjoyed a strong final quarter across the board. Its core conveyor-belting division, which mainly serves coal miners in north America and Australia, continued to be buoyed by China's unquenchable thirst for coal-fired power - though non-mining markets remain weak. The group's operating margin rose about two percentage points in the period, suggesting that Fenner's significant capital expenditure programme is bearing fruit. Moreover, chief executive Mark Abrahams - who becomes non-executive chairman in March, to be replaced by Nick Hobson - reckons there's room for further uplift as higher-margin products are growing faster.
Fenner's smaller and highly diverse advanced engineering products division tends to get ignored, but it provided the lion's share of the profit recovery last year and the operating margin there were also strong at 14 per cent. Management has particularly high hopes for the medical business, which it wants to spin out into a separate division.
Following upgrades, broker KBC Peel Hunt expects adjusted pre-tax profit of £62m for 2011, giving EPS of 22p (2010: £46.3m/17.8p).
FENNER (FENR) | ||||
|---|---|---|---|---|
| ORD PRICE: | 277p | MARKET VALUE: | £ 532m | |
| TOUCH: | 276-277p | 12-MONTH HIGH: | 280p | LOW: 162p |
| DIVIDEND YIELD: | 2.6% | PE RATIO: | 19 | |
| NET ASSET VALUE: | 133p* | NET DEBT: | 43% | |
| Year to 31 Aug | Turnover (£m) | Pre-tax profit (£m) | Earnings per share (p) | Dividend per share (p) |
|---|---|---|---|---|
| 2006 | 379 | 29.3 | 13.0 | 6.00 |
| 2007 | 381 | 33.6 | 15.0 | 6.23 |
| 2008 | 438 | 36.3 | 15.5 | 6.60 |
| 2009 | 499 | 5.60 | 2.60 | 6.60 |
| 2010 | 553 | 37.2 | 14.6 | 7.20 |
| % change | +11 | +564 | +462 | +9 |
Ex-div:02 Feb Payment:07 Mar *Includes intangible assets of £170m or 89p per share | ||||
