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Castings squeezed by automotive industry pressures

The iron castings and machining specialist was hit by lower demand, production issues and higher raw material prices
June 16, 2021
  • Adjusted operating profit plunged by two-thirds in the year to 31 March, to £4.3m
  • Final dividend increased by 3 per cent to 11.69p per share

Iron casting and machining group Castings (CGS) is heavily reliant on the automotive industry, with around 70 per cent of sales coming from commercial vehicle customers. As major clients closed their production facilities at the beginning of the pandemic, the group saw its output collapse by 80 per cent last April and May.

While demand improved throughout the rest of the year to 31 March, Castings’ production was restricted by more UK employees needing to self-isolate. It also experienced “significant” increases in raw material prices in the last three months of the year, in particular for steel scrap and copper. These additional input costs will only be recovered from customers through price rises in the new financial year.

As a result, the group’s adjusted operating profit plunged by two-thirds to £4.3m. While the larger foundry business remained profitable, losses at the machining division widened to £2.3m.

It wasn’t all bad news. Castings still has no long- or short-term borrowings and increased its cash pile by 8 per cent to £36m. Unlike many other companies, it held onto its dividend during the Covid crisis and has lifted the final pay-out by 3 per cent to 11.69p per share.

Castings is now back to full production, although there is still uncertainty ahead. Volumes are likely to be affected by customers’ ongoing supply chain issues, most notably the global semiconductor shortage. Hold.

CASTINGS (CGS)   
ORD PRICE:382pMARKET VALUE:£ 167m
TOUCH:381-383p12-MONTH HIGH:405pLOW: 302p
DIVIDEND YIELD:4.0%PE RATIO:40
NET ASSET VALUE:297pNET CASH:£36.1m
Year to 31 MarTurnover (£m)Pre-tax profit (£m)Earnings per share (p)Dividend per share (p)
201711915.929.813.97
201813312.122.514.50
201915014.125.214.78
202013912.723.114.88
20211154.999.5115.26
% change-17-61-59+3
Ex-div:22 Jul   
Payment:23 Aug   
 

Last IC View: Sell, 330p, 13 Nov 2020