Carr's surefooted despite strange business mix

Carr’s (CARRC) has all the lingo of a 21st century business, with talk of synergies and governance reforms, but is still built around an old-fangled combination of farming products and engineering, spread across 20 different businesses. The portfolio has delivered stable profits and dividends, even during the pandemic. The group's share price also made sizeable gains on the back of solid half-year numbers. 

Carr’s both sold a record 165 tractors in the six months to 27 February and also found new work in the defence sector through its engineering division. The engineering division – the company’s smallest – took a hit from the oil price crash but the agricultural units made up for this. Carr’s said the engineering order book had also recovered somewhat, standing at £44m compared with £37m at the end of its last financial year, in August. 

The question for new Carr’s chief executive Hugh Pelham is whether the existing structure of the group provides the optimal route to new business opportunities. To this end, he has promised both a simplification of the company and new acquisitions. He told Investors’ Chronicle that both were possible. Carr’s is looking at buying other businesses in continental Europe, he said, which would add to existing engineering and specialty agriculture businesses in Germany. 

"While we continue to have autonomous business with their managing directors, if they produce similar products and serve similar customers, albeit in different geographic markets, I am keen we get them operating more closely," he said. 

Pelham gave the example of Carr's paying different prices for molasses in Germany, the UK and the US, with significant differences between the countries. 

The farming divisions were the profit drivers in the first half. Specialty agriculture, which sells feedblocks and other livestock products, saw a one-quarter hike in its adjusted operating profit to £8m, while engineering contributed an adjusted operating profit of £0.9m, a fall of almost a quarter on last year. The group trades across the UK, the EU and US. Pelham said Brexit had made imports and exports more difficult from the UK.

The company cut its net debt, excluding leases, to £10.6m as of 27 February. This was partly down to a working capital inflow of £4m. 

Broker Investec has forecast a minor increase in cash profits for the full year, at £21.8m compared with £21m in 2020. Carr's is a bizarre company in many ways, with its wide range of businesses more akin to a conglomerate like Tata than a firm with annual sales of around £400m. Still, it has been a consistent performer despite wider economic disruption. Hold. 

Last IC View: Hold, 105p, 15 Apr 2020