Castings (CGS) remains in the doldrums. The specialist industrial supplier warned that its ailing machining operation, CNC Speedwell, will take “at least two years” to turn around. The group’s foundry operation also struggled in the first half, with profits of £6.5m representing a 5.7 per cent drop from the previous period, while the return on assets was broadly static at 3 per cent. Given several new production lines commenced during the period, "many of which require considerable engineering focus to maximise productivity", we don't anticipate a marked improvement in the metric in the near term.
Both divisions have been dogged by production inefficiencies. Management is keen to tackle these and maximise asset returns with a focus on maintaining its existing equipment. It has elected to abandon its previous “use it and replace it policy” and increase the lifespan of recently acquired plant and machinery items by 50 per cent to 15 years. This extension seems prudent given the disruption caused by the introduction of new production processes at both arms.
Broker Arden Partners has cut its earnings per share forecasts by 18 per cent for the March 2019 year-end, to 25.4p (from 30.9p), rising to 31.9p in FY2020.
| CASTINGS (CGS) | ||||
| ORD PRICE: | 393p | MARKET VALUE: | £171m | |
| TOUCH: | 376-400p | 12-MONTH HIGH: | 484p | LOW: 372.5p |
| DIVIDEND YIELD: | 3.7% | PE RATIO: | 18 | |
| NET ASSET VALUE: | 294p | NET CASH: | £19.6m | |
| Half-year to 30 Sep | Turnover (£m) | Pre-tax profit (£m) | Earnings per share (p) | Dividend per share (p) |
| 2017 | 61.7 | 5.9 | 11.0 | 3.38 |
| 2018 | 68.3 | 5.8 | 10.7 | 3.38 |
| % change | +11 | -2 | -3 | |
| Ex-div: | 22 Nov | |||
| Payment: | 2 Jan |
