Fenner: 10th September 13 update: Reassuring trading statement; needs upgrades but these are likely!
Fenner (370p and 3% of JIC portfolio): I have bought a holding in Fenner today. I have held the shares in the JIC portfolio before but sold out last May at 400.2p. Since the pre-close trading statement on 7th March which wasn't terribly bearish but neither was there enough to drive the shares on in the short term, the share price has come back some 15%. At this level it seems attractive to me on an August 2013 PE ratio of 11.3x, falling to 10.1x August 2014 (10% growth) and 9.1x August 2015 (10% growth). Its forecast dividend yield is 3.1%.
What does it do? The following is taken from the 7th March trading update:
Fenner PLC is a leading global provider of local, engineered solutions for performance critical applications. The group operates through two divisions: Engineered Conveyor Solutions. The ECS division, trading under the Fenner Dunlop, Fenner and Dunlop brand names, is a recognised leader in the global conveying market. The division offers a unique, comprehensive suite of products and services, which cover the conveying needs of mining, power generation and bulk handling markets. Advanced Engineered Products. The AEP division excels at solving customers' most challenging application problems. Drawing from an unprecedented array of polymer, elastomer and textile technologies, the division routinely develops innovative performance- critical components for OEM customers in markets from underground oil exploration/mining to satellites/aircraft, speciality off-road vehicles to implantable medical devices, and from bank note dispensers to wind turbines. The Division's trading names are recognised globally and include Hallite, CDI Energy Products, EGC Critical Components, FAST, Fenner Precision, Fenner Drives, James Dawson, Secant Medical and Xeridiem.
The balance sheet is okay with net gearing estimated at around 50% at the half year stage, following £60m of acquisition payments and it is highly cash generative. It is a cyclical business and in the 7th March trading statement it warned that things had been a little slow in its December - February quarter but that it was "well positioned to respond to generally improving demand drivers and looked forward to continuing to make progress through its traditionally stronger trading period".
Conclusion: The shares have fallen back over the last month and in my view now look ripe for a good bounce, which will be helped if the Company can give a more positive update with its half year results due towards the end of this month. (see transaction history)
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11 comments
Fenner (371p and 3.2% of JIC Portfolio) has issued a succinct trading statement following the end of the its financial year in 31st August. Results are anticipated to be in line with expectations and net debt at 31st August was better than expected at £125m. It says trading conditions have remained broadly unchanged since the interim management statement and that it continues to anticpate a return to growth in the current financial year.
Conclusion: Hopefully Fenner's optimism about the year ahead is well founded. There are signs that growth is picking up around the world; this morning China announced faster than expected industrial output, European indicators are improving and in Australia the new "mining friendly" Government should give a boost to capital expenditure in the industry. The shares have rallied well, up 20% from when I added to the holding on 27th June and are valued at 11.3x consensus earnings forecasts for the year ending August 2014 and 10.4x the following year, for 10% earnings growth. No longer compellingly cheap, I think the shares will need upgrades to earnings forecasts to drive them on. These, however, should emerge as Fenner is operationally geared to any uptick in demand that should come with an acceleration in world economic growth. Holder!
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Fenner (322p and 2.9% of JIC). The company has issued an “in-line” trading statement ahead of its 31st August year end. Moreover, it says that “notwithstanding current conditions in the Australian mining industry, it expects a return to growth in its 2013/14 financial year”. Prospects are improving in Advanced Engineering Projects (AEP) and in the majority of the Engineered Conveyor Solutions (ECS) businesses.
Conclusion; I think that expectations were pretty low and that the market will be relieved that there are no downgrades to estimates for the current year and that management is confident of a return to growth next year. On a forecast PE of 9.2x August 2014 earnings for 15% growth and a forecast yield of 3.5% for the current year ending August 2013, I would expect the shares to make a good recovery over the next 6 months or so. Shares seem very cheap to me. Happy Holder!
www.JohnsInvestmentChronicle.com
Fenner (308p and 3.0% of JIC Portfolio) Fenner has been weak of late, no doubt on worries that its end markets will be hit by a slowdown in economic growth. I think this has provided a buying opportunity and have increased my holding to 3.0% of the portfolio. On a short term basis the Relative Strength Index looks oversold (see below) and a PE ratio on consensus forecasts for the year ending August 2014 of 8.8x for 15% growth, combined with a forecast dividend yield of 3.9% looks attractive. (See transactions)
www.JohnsInvestmentChronicle.com
Yes, looks like the recent weakness in the share price had discounted the bad news!
We seem to be OK for the time being....(9.05am)!
Fenner (355p and 2.8% of the JIC portfolio) has issued its half year results for the 6 months to 28th February. In its 7th March trading statement it said that "trading in the second quarter of the financial year has been in accordance with management expectations". I only hope that the market's expectations were in line with management's because these results show quite a slowdown on the previous year with revenue at £391.3m v £412.0m, pre-tax profits of £35.8m v £48.1m and earnings per share of 11.9p v 17.1p. Operating margins dropped to 11.1% from 13.5%. The good news is the 7% increase in the dividend to 3.75p which management says reflects its confidence in its earnings prospects.
Engineered Conveyor solutions is under pressure in Australia with slowing cap-ex in the mining industry but in North America it is seeing improving order levels. In Advanced Engineered Products it says that activity levels are "continuing to improve after a quieter start to the year following customer destocking". It says that acquisitions during the period performed ahead of expectations and that it was confident of a return to growth in the next financial year.
Conclusion: It is to be hoped that the first half, just reported on, marks the nadir in the slow down for its business and that the second half sees a pick up and that management's confidence in a return to earnings growth next year is not misplaced. Given the massive monetary stimulus that is going on all around the world hopefully the pick up the company talks about will gather pace. In the meantime there will be downgrades to forecasts and it may be a difficult day for the shares. On new forecasts of c.30p for the current year and 35p for next the shares are valued at 11.8x falling to 10x in 2014 for 15% growth. Nervous Holder!
I guess we will see in the morning!!
Looking at the JIC portfolio, the poor performers in the last couple of weeks have been manufacturers eg Melrose Industries (LON:MRO), Fenner (LON:FENR) and Laird (LON:LRD). I'm sure it will all get overdone but I feel reasonably happy with these three. Fenner (LON:FENR) directors bought earlier this month which suggests to me that they are reasonably happy with business.
DLG12,
I assume it is being dragged down with the mining sector where a significant amount of its sales of conveyor belts come from. See last week's FT article entitled "Fenner is about more than conveyor belts" for example.
Price continuing to decline in advance of half year results. Does anyone have any insight?
I agree - I hold and bought more today. If you compare with other industrials Fenner is undervalued by some margin, notwithstanding the need for a postitive update on 24th April. The shares have been trading in a channel between 360p and mid 400p.