Avon Rubber jumps as profits beat expectations

Avon Rubber
702½p+43p
Questor says BUY

MANUFACTURING group Avon Rubber reported a strong rise in profits for the year, leading brokers to upgrade expectations, which helped to send the shares up more than 5pc yesterday.

The Wiltshire-headquartered group said adjusted pre-tax profits were up from £13.7m to £16.6m during the period, with revenue flat at £124.8m.

Chief executive Peter Slabbert hailed an “excellent year” during which Avon was steadily taking control of its distribution network, allowing it to charge retail prices rather than wholesale prices for its goods. The difference between the wholesale and retail price can be as much as 33pc.

Avon Rubber manufactures gas masks for the military and rubber items used by dairy farmers in the milking process; and the majority of the profit comes from the provision of those gas masks to defence clients.

Although defence budgets are under pressure worldwide, Avon said a strong order intake in Protection & Defence put the company in a good position for next year. It said it was well placed as the sole US defence supplier, where it is locked midway into a 10-year contract. Avon said orders of its M50 gas mask provided good revenue visibility.

The company now has a much stronger balance sheet position after it eliminated its £10.9m debt and turned it round to a £2.9m cash balance by the year end at September 30. Avon took charges of £2.3m during the year, the majority of which related to closing down old manufacturing facilities in the US. The company expects to make savings of £1m a year from next year following the closure.

Avon also generated plenty of cash during the year, the amount from operations almost doubling and investment spending falling sharply.

Meanwhile, the annual dividend was increased by 30pc to 5.61p, with the shares going ex-dividend on February 18 and payable on March 20. Although the dividend only offers a forecast yield of 0.9pc, it is expected to increase by more than 20pc and is covered eight times by earnings.

Questor recommended buying the shares as we flagged the possibility of upgrades (Buy, 627p, May 1), and we stick with this position for the long term. Buy.