Avon Protection increases order intake by 50%

Things are looking up at Avon Protection (AVON). The maker of protective helmets and respiratory gear reported momentum in sales, margin and cash generation, although perhaps most encouraging was the 50 per cent increase in its order intake to $190mn (£150mn). 

This shows that for all of the turmoil it has suffered in the past two-and-a-half years, key customers remain happy with its products. 

Avon Protection reported an increase in adjusted pre-tax profit by two-thirds to $8.8mn, although adjustments including $5.3mn of restructuring charges meant a reported loss of $1.5mn. The costs relate to the consolidation of helmet manufacturing sites in the US.

Other improvements made to production processes mean losses due to scrapped helmet products have dropped from nearly $1mn a month to around $100,000-$150,000, according to chief executive Jos Sclater.

Avon has become more efficient in terms of inventory turn, converting $23mn of stock into cash during the half. This helped to boost cash inflow from continuing operations to $23.4mn, compared with an outflow of $15.7mn in the same half last year. Net debt was cut by around 20 per cent to $76.5mn.

“We’re on much firmer financial footing,” said Slater. “We’ve gone in the space of a year from being quite stretched to very secure.”

Although maintaining our hold call six months ago now looks overly cautious given the subsequent 75 per cent rally in the company's share price, the turnaround has been achieved at speed. It was also far from guaranteed, given Avon’s recent history. 

However, the rally means Avon's shares now trade at 27 times earnings and, although broker upgrades could follow given a more confident outlook, the recovery already looks priced in. Hold.

Last IC view: Hold, 770p, 21 Nov 2023