Constant currency sales growth of 4.5 per cent, ahead of a modest 3 per cent target, provides one route to judge Avon Rubber’s (AVON) financial year to September 2017. Another method might be to connect the following dots – a 45 per cent uptick in the closing order book, a 70 basis point drop in research spend as a proportion of revenue, and a bullish hike in the dividend – and conclude that the milk and respiratory product specialist is primed for higher profits.
Paul McDonald, who recently took the top job after 14 years at the company, sounded a further note of optimism with a commitment to increase the payout by 30 per cent each year until it is twice covered by earnings. That confidence is backed by both the most recent cash flow statement and balance sheet. Cash conversion – the proportion of adjusted cash profits booked as operating cash inflows – remained ahead of expectations at 98.1 per cent, and added £22.7m to the net cash pile.
Current treasury practice is to convert all of this capital, including overseas earnings, into sterling. Should Avon’s hunt for a new acquisition take it beyond the UK, this policy might need to change, although US private equity activity has reportedly pushed up valuations for potential targets in the largest global market for dairy and military kit. Peel Hunt forecasts adjusted pre-tax profit of £26.8m and EPS of 70.2p in the year to September 2018, versus 82.8p in FY2017.
| AVON RUBBER (AVON) | ||||
| ORD PRICE: | 1,090p | MARKET VALUE: | £338m | |
| TOUCH: | 1,086-1,119p | 12-MONTH HIGH: | 1,160p | LOW: 885p |
| DIVIDEND YIELD: | 1.1% | PE RATIO: | 15 | |
| NET ASSET VALUE: | 179p* | NET CASH: | £24.7m | |
| Year to 30 Sep | Turnover (£m) | Pre-tax profit (£m) | Earnings per share (p) | Dividend per share (p) |
| 2013 | 125 | 12.4 | 30.0 | 4.32 |
| 2014 | 125 | 13.9 | 36.2 | 5.61 |
| 2015 | 134 | 17.8 | 50.4 | 7.29 |
| 2016 | 143 | 15.9 | 58.1 | 9.48 |
| 2017 | 163 | 18.6 | 70.6 | 12.32 |
| % change | +14 | +17 | +22 | +30 |
| Ex-div: | 15 Feb | |||
| Payment: | 16 Mar | |||
| *Includes intangible assets of £40m, or 130p a share. | ||||
