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Rotork's growth programme is paying off

The group is improving margins and returns despite difficult markets
Rotork's growth programme is paying off

Rotork’s (ROR) growth acceleration plan is continuing to pay off. The group has been focusing on building margins and return on capital employed (ROCE) through improvements to efficiency and cutting costs. So far it is working, with adjusted operating margins improving 160 basis points to 22.6 per cent and ROCE up 260 basis points to 31.8 per cent despite lower-than-expected sales.

IC TIP: Buy at 300p

The shares jumped following the announcement, climbing 9 per cent, but management warned geopolitical uncertainty is high, which is making customers cautious on capital investment decisions. In light of recent events, uncertainty looks likely to remain high in the near term.

The controls division, the largest at 53 per cent of revenues, reversed its first-half decline to end the period up 0.4 per cent, although it was still down 0.9 per cent on an organic constant-currency basis. However, procurement and productivity savings combined with a more favourable mix pushed the adjusted operating margin up 320 basis points, boosting operating profit by 10.3 per cent over the year.

Bloomberg consensus forecasts give adjusted EPS of 13.6p for 2020, up from 13p in 2019.

ROTORK (ROR)   
ORD PRICE:300pMARKET VALUE:£2.62bn
TOUCH:300-300.4p12-MONTH HIGH:345pLOW: 269p
DIVIDEND YIELD:2.1%PE RATIO:28
NET ASSET VALUE:62p*NET CASH:£106m**
Year to 31 DecTurnover (£m)Pre-tax profit (£m)Earnings per share (p)Dividend per share (p)
20155461028.65.1
2016590917.75.1
2017642816.45.4
201869612110.55.9
201966912410.86.2
% change-4+3+3+5
Ex-div:9 Apr   
Payment:22 May   
*Includes intangible assets of £263m, or 30p a share, **Includes lease liabilities of £10.7m