Federal shutdown hits Avon Rubber

The impact of the shutdown was two-fold. The US Department of State, which approves export licences for Avon Rubber’s rest-of-world military customers, closed, creating an administrative backlog. Federal funds for US government work were also delayed. Business is returning to normal, according to chief executive Paul McDonald, but “what we haven’t seen is that catch-back of that missing six weeks”. Avon Protection revenues are now expected to grow in mid single digits on a constant currency basis for the full year.

Weak market conditions reduced revenues for Avon’s Milkrite-InterPuls. But milk prices and farmer confidence are rebounding. The ratio of milk price to feed costs, the two critical components to the dairy business, is now in positive territory at a multiple of 1.6, according to Mr McDonald, effectively yielding a one-third contribution of free cash flows to fund the rest of the business. Avon’s cash pile is rising, and the company is tracking around 30 businesses for potential M&A activity. It expects to deploy about £150m over the next two to three years, Mr McDonald said.

Broker Peel Hunt forecasts adjusted pre-tax profits and EPS of £29.3m and 77.5p for its September 2019 year-end, rising to £31m and 81.9p in 2020.