LONDON (ShareCast) - - PBT up 10.3%, EBITDA down 3.3%
- Revenues down due to Defence softness
- Low yields at Certech a concern
- Order book up 12.4% YoY

Profits were better than expected at Morgan Advanced Materials (MGAM) in the first half of the year, with a much improved order book in spite of the "mixed" market and depressed revenues from its defence arm.

On revenues down 7.8% year-on-year at £448.4m, or flat at constant currencies, underlying pre-tax profits were up 10.3% £43.8m, on the same period the prior year, or 22.1% on a constant currency basis.

The FTSE 250 materials technology group saw earnings before interest, tax, depreciation and amortisation slide 3.3% to £56.4m due to currency headwinds, or up 6% at constant rates.

The outstanding order book was 12.4% higher than at the same time last year, with a book-to-bill ratio of 1.06 times thanks to all geographies being in positive territory and the Asia region showing particular strength.

Chief Executive Mark Robertshaw was encouraged, although said management expects market conditions to "remain mixed".

European trading was broadly stable compared with the previous year, with the exception of the Composites and Defence Systems (C&DS - and formerly NPA) business, where revenue was £13.8m lower in part through the exit of some low-margin lines of business but also due to the timing of programme orders and shipments.

Moreover, there were low yields at Certech, the US producer of ceramic cores used in the manufacture of turbine blades for aerospace and industrial gas turbines, which combined with lower demand for hard disk-drive products to produce a fall in revenues at the Technical Ceramics businesses, leading some analysts to downgrade their full year expectations.

MGAM said the second half was expected to show an increase in Certech margins as yield levels begin to improve.

Robertshaw fairly judged the positives to be in the ascendancy and said: "I am pleased with the progress we are making in proactive portfolio reshaping both in terms of exiting lower margin lines of business but also with the growth coming through in geographies such as Asia and in technology families such as Thermal Ceramics, Electrical Carbon and Seals and Bearings."

He pointed to investment in research and development, such as the new Centre of Excellence for Structural Ceramics in the UK, and in higher levels of growth capital expenditure, including the new greenfield sites in Dalian, China and the United Arab Emirates.

"Our focus remains on self-help initiatives: driving positive mix, delivering cost efficiencies and making continued investments in technology and differentiation. This, aligned to an improved order book compared with the equivalent period last year, gives the board confidence that the group will make progress in the second half of 2014."

Broker Investec reduced its full year 2014 and 2015 EPS estimates by 6% and 2% to reflect the impact of Certech and generally weak markets but was bullish on the stock as "there are enough positives - including the improving order intake - to justify a profile of decent recovery in earnings estimates".

While analyst Michael Blogg noted that end markets remained generally difficult, the fact that several units were trading well and shipments from C&DS will be stronger in the second half bodes well for MGAM. He has a 'buy' on the shares and a slightly reduced 345p price target.

Shares in the company were up 3.79% to 312.20p at 09:35 on Tuesday.


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