Trucks drive sales at Castings

West Midlands-based manufacturer Castings (CGS) is benefiting from strong demand for heavy trucks. The group’s two iron foundries increased their output by 1.6 per cent in the first half of 2023, while price per tonne jumped by 28 per cent due to passed-on costs and customers ordering more processed – and thus more expensive – parts.

As a result, group revenue increased by 30 per cent to £111mn and profit before tax shot up by 38 per cent to 10.3mn, despite “some production inefficiencies” and continued input price pressure. 

Castings is now constrained by capacity, and has been forced to outsource some production to other foundries. However, it plans to invest £17mn in a new production line to satisfy demand for heavy truck parts, and to tap into new markets such as truck electrification and wind energy.

Against this backdrop, the big question is whether demand will hold up. Demand for heavy trucks is currently high as vehicle manufacturers work through large order backlogs. However, according to Zeus Capital, the likes of Volvo and Scania have flagged that order intake is now slowing down due to macroeconomic weakness. 

It is also important to note that about a third of Casting’s turnover comes from the sale of parts which are used to produce internal combustion engines. As the electrification of transport gathers pace, this side of the business could be hit by technological and regulatory changes.

Castings has no debt, good cash generation and is scaling up its operations. However, questions over short and long term demand, together with its exposure to energy prices, keep us on the sidelines. Hold. 

Last IC View: Hold, 413p, 14 Jun 2023