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Carr’s is on the comeback trail
Recovery investors should bag shares in agriculture-to-engineering combine Carr’s (CARR). The company’s first quarter update (9 Jan) highlighted improving performance in both the agriculture and engineering divisions which was ‘significantly ahead’ of last year. Investec Securities has a ‘buy’ rating and 195p price target for Carr’s, implying upside of more than 37%.
Investors often overlook agricultural technology markets. This seems curious as they are global, vast and offer attractive long-term returns, as farmers will adopt new technologies that deliver clear returns. Supplying value added products and solutions to customers around the world, Carr’s offers a compelling play on the agri-tech theme.
Its Agriculture division manufactures and supplies feed blocks for livestock, farm machinery and runs a UK network of rural stores, providing a one-stop shop for farmers. Carr’s Engineering arm makes specialist equipment for use in the nuclear, petrochemical, oil and gas, pharmaceutical, process and renewable energy industries.
Carr’s profits slumped last year amid weaker demand in the US feed market, caused by lower cattle prices, and due to a major engineering contract delay.
Against this backdrop Shares is heartened by Carr’s positive first quarter update. ‘We are seeing the continued recovery across both divisions and the investments we have made in acquisitions and research will continue to act as a solid foundation for ongoing growth,’ enthused CEO Tim Davies.
Within UK Agriculture, farm incomes and farmer confidence are improving, boosting Carr’s machinery sales and with UK feed block sales also remaining strong. Across the pond, US feed block sales volumes continue to recover with a tailwind from improving cattle prices for producers.
Over in Engineering, the major UK nuclear contract announced last summer is underway and running to schedule, with Carr’s remote handling businesses performing well.
The integration of $20m acquisition NuVision, an engineer bringing a foothold in the main nuclear markets of the US, is progressing as planned and Carr’s is excited by the opportunity to market the equipment of its German remote handling business Wälischmiller in the USA thanks to this deal.
For the year to August 2018, Investec forecasts a rebound in pre-tax profit to £15.2m (2017: £11.4m) for earnings per share (EPS) of 11.5p, ahead of £16.6m pre-tax profit and 12.7p of EPS in 2019.
Based on next year’s forecast earnings, Carr’s looks good value on a prospective PE of 11.2 times. Investors are also being paid 3%, based on this year’s anticipated dividend hike from 4p to 4.3p, while they wait for Carr’s the recovery to come through.