Rotork pins hopes on strong second half

Like many industrial manufacturers, Rotork (ROR) is at the sharp end of component shortages, inflation and freight delays. The valve maker saw sales dip in the first half of 2022, while its profit margin fell and cash became tied up in higher levels of stock. 

The topics covered in Rotork’s interim results are depressingly familiar. The group describes shortages of semiconductors, electronics and other components and disrupted freight services, which resulted in fewer deliveries. Labour costs were also higher than usual and the price of key commodities such as copper, aluminium and steel added to the pressure. 

The company’s water and power arm has been hit particularly hard. Revenue fell by 18.4 per cent to £64.9mn during the period, and its adjusted operating profit margin shrunk by over six percentage points. Once again, the division was the most affected by cost increases and electronics and semiconductor shortages.

There are some positive signs, though. The group has a record order book after winning £340.1mn of work – 14 per cent higher than this time last year – and management expects Rotork’s full-year results to have a “greater than usual weighting to the second half”. A price hike imposed in May is also expected to boost revenue over the next six months.

A great deal of uncertainty remains, however, and Rotork admitted that forecasting “remains challenging". Analysts at Shore Capital said there is now increased pressure for the group to deliver over the next six months, as the adjusted operating profit reported today makes up less than 40 per cent of the current consensus forecasts for the whole year. 

Whether Rotork can step up to the plate remains to be seen. Hold. 

Last IC View: Hold, 316p, 1 Mar 2022