Carr’s Group — At an inflexion point

Carr’s Group (LSE: CARR)

Last close As at 13/12/2024

GBP1.23

−0.50 (−0.41%)

Market capitalisation

GBP116m

More on this equity

Research: Industrials

Carr’s Group — At an inflexion point

Carr’s Group plan to dispose of the Engineering businesses remains on track and will leave the company as a focused agricultural supplies business. Restructuring (both the cost base and exiting loss-making activities) along with actions from the new management and potential from a market upturn should provide positive forward momentum and support the future growth strategy.

David Larkam

Written by

David Larkam

Analyst, Industrials

Industrials

Carr’s Group

At an inflexion point

FY24 results

General industrials

16 December 2024

Price

123p

Market cap

£118m

Net cash (£m) at 31 August

4.5

Shares in issue

94.4m

Free float

61.5%

Code

CARR

Primary exchange

LSE

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

(0.2)

0.4

20.6

Rel (local)

(3.3)

0.1

9.4

52-week high/low

150p

94p

Business description

Carr’s Group’s Speciality Agriculture division serves farmers in the UK, Ireland, the US, Germany, Canada and New Zealand with feed blocks and feed supplements. The Engineering division is currently in the process of being sold.

Next events

AGM

February 2025

Analyst

David Larkam

+44 (0)20 3077 5700

Carr’s Group is a research client of Edison Investment Research Limited

Carr’s Group plan to dispose of the Engineering businesses remains on track and will leave the company as a focused agricultural supplies business. Restructuring (both the cost base and exiting loss-making activities) along with actions from the new management and potential from a market upturn should provide positive forward momentum and support the future growth strategy.

Year end

Revenue (£m)

PBT*
(£m)

EPS*
(p)

DPS
(p)

P/E
(x)

Yield
(%)

08/23

81.8

2.9

2.5

5.2

52.0

4.0

08/24

75.7

2.5

2.6

5.2

50.0

4.0

08/25e

73.8

4.2

3.8

1.3

34.1

1.0

08/26e

79.0

7.4

6.4

2.1

20.2

1.7

Note: *PBT and EPS are normalised, excluding amortisation of acquired intangibles, exceptional items and share-based payments. Results and forecasts are for continuing operations.

Full year results

Agriculture’s continuing operations sales of £75.7m declined 7.5% due to lower pass-through pricing offsetting volume growth. Operating profit of £5.2m declined 10.8% (margins 5.0% from 5.4% excluding JVs) due to a soft H1, before an improved H2, and losses in Afgritech, New Zealand and Animax (now all fully addressed). UK volumes improved although energy and new management costs affected profitability. US revenues were lower, with the south still affected by drought, although exiting loss-making business drove profit growth. Engineering, reported as discontinued, posted positive results, with sales of £60.1m (+19%) and profit of £7.2m (+37%). Continuing activities PBT was £2.5m, down from £2.9m in FY23, with EPS of 2.6p (+4%). The dividend was held at 5.2p a share. Cash flow over the year was neutral with net cash up from £4.2m in FY23 to £4.5m.

Outlook and forecasts

Positive market momentum in the UK and positive signs in the US have continued into the current year, which will be supplemented by the actions from the new management and recent restructuring and site closures. Our FY25 forecasts are unchanged but reflect Engineering being moved to discontinued operations.

Strategic development

The group is being focused into a specialist agricultural supply business. The process of selling the Engineering businesses is, according to management, progressing to plan. Actions have been taken to exit loss-making businesses, plants and activities. A new management team is reinvigorating the strategy to accelerate growth, primarily in the branded higher-margin products. This is expected to drive profit growth with the anticipation of additional benefits from a recovering end market.

Valuation: Disposal to validate valuation

Our sum-of-the-parts valuation comes to c £155m or 165p a share (124p previously); £70m for Engineering, £80m for Agriculture and £4.5m cash on the balance sheet. The disposal of Engineering is likely to provide a litmus test for our valuation.

FY24 results

Overview

The headline results have been significantly affected by the strategy to focus the group on the Agriculture activities, leading to the plan to dispose of the Engineering division. Along with the closure of the loss-making Afgritech operations and internal restructuring, this has led to significant discontinued operations and exceptional charges. Exhibit 1 highlights the results from the continuing operations.

Exhibit 1: Summary results – continuing operations (£m)

FY23

FY24

Change

Revenue

81.8

75.7

-7.5%

Adjusted operating profit

2.8

2.2

-23.8%

Exceptionals

(3.7)

(9.0)

Operating profit

(0.9)

(6.8)

Financing costs

0.1

0.3

Adjusted PBT

2.9

2.5

-15.1%

Reported PBT

(0.8)

(6.5)

Adjusted EPS (p)

2.5

2.6

+4.0%

Reported EPS (p)

(1.0)

(4.8)

Dividend per share (p)

5.2

5.2

0.0%

Net cash

4.2

8.0

Source: Edison Investment Research

Agricultural business

The Agricultural business manufactures nutrition supplements for livestock, primarily beef, dairy and sheep. Products are developed to assist digestion and wellbeing. Feed blocks account for 90% of sales, with the remainder made up of boluses (longer-term release supplements) and bagged minerals. Key markets are the UK, where Carr’s is the market leader in low-moisture feed blocks through brands such as Crystalyx, and North America, where Carr’s has a presence with brands such as SmartLic, and it has operations in Germany serving the European market and a distribution presence in Australasia.

Exhibit 2: Key products

Source: Carr’s Group

The US market remained soft due to drought conditions in the south and continued depressed cattle numbers. As a result, volumes in feed blocks declined 15%, but cost action assisted profit margins. The UK saw volumes increased, led by feed blocks (up 12%) as the market was assisted by the fall in input costs and pricing, albeit this held back the top line. Margins were affected by costs including the gas price and reorganisation as a new management team was put in place.

Exhibit 3: Agriculture underlying continuing results (£m)

FY23 restated

FY24

Sales

UK

36.1

38.2

US

45.7

37.5

Total

81.8

75.7

Operating profit

UK

2.6

1.1

US

1.8

2.7

JVs

1.4

1.4

Total

5.8

5.2

Operating margin

UK

7.2%

2.9%

US

3.9%

7.2%

Source: Carr’s Group

Key actions in the year included reinvigorating the management team, including integration with the UK, along with exiting loss-making operations, including:

Closure of Nevada plant (FY24 loss £0.3m)

Closure of Afgritech (FY24 loss £0.5m)

New Zealand restructuring (FY24 loss £0.3m)

Implementation of the Animax turnaround plan (FY24 loss £0.8m)

These actions along with stability in the US and the early recovery being seen in the UK suggest an improving performance in the current financial year. We note the historical performance of the business, which provides an indication of the potential recovery upside.

Exhibit 4: Agriculture historical performance (£m)

Source: Carr’s Group

The new management has set out a strategy for the business to include:

Improved operating margin: this is expected to be driven by continued actions on the cost base above those already highlighted, improved efficiencies at the operations through investment in areas such as automation and a shift in the portfolio away from commodity to higher-performance branded products.

Profitable growth: focus on driving the strong brands, assisted by new product development and re-invigorating the sales channels, as seen in the UK with new commercial leadership and a more integrated sales team.

International expansion: aim to develop the group’s presence in emerging agriculture markets looking to improve productivity. This will start with a distribution-based model.

Discontinued operations

The Afgritech and engineering businesses have been reported as discontinued. Afgritech was closed in October 2024. Key is the Engineering division, which performed well, delivering on its record order book, which, while down from the previous record levels, remains high and supportive of future performance. This should assist the current sale process.

Exhibit 5: Engineering division results (£m)

FY23 restated

FY24

Sales

50.6

60.1

Adjusted operating profit

5.3

7.2

Operating margin

10.5%

12.0%

Order book

59.8

53.6

Source: Carr’s Group

Exceptionals

Exceptionals totalled £14.6m, including £7.1m of associated cash costs, not all of which was incurred in FY24. These refer primarily to restructuring of the operations and the disposal programme. Note the £3.3m pension de-risking included a £2.9m historical equal pay increment. The process to derisk the scheme further through a ‘buy-in’ is ongoing.

Exhibit 6: Exceptionals (£m)

Restructuring and disposal costs

3.3

ERP implementation costs

0.8

Pension de-risking

3.3

Profit on property disposal

(0.2)

Asset impairment

6.9

Intangible amortisation

0.5

Source: Carr’s Group

Cash flow

Positive operational cash generation was boosted by improved working capital along with the deferred payment from the 2022 disposal of the Agricultural Supplies business. The main outflows included £3.1m on exceptional items and £6.0m of dividends. Net cash at the year end increased from £4.2m in FY23 to £4.5m, £8.0m within the continuing operations and £3.5m debt held in the discontinued businesses.

Exhibit 7: Cash flow (£m)

FY24

EBITDA

4.1

Working capital

3.2

Exceptional & other

(2.8)

Tax

1.5

Net Operating cash flow

6.0

Investment activities

(1.0)

Acquisitions/disposals

4.0

Net interest

0.1

Dividends

(6.0)

Other including financing of discontinued operations

(2.4)

Net Cash Flow

0.6

FX/Other

(0.3)

Closing net cash/(debt)

4.5

Source: Carr’s Group


Forecasts

Management commented that the positive recovery seen in the UK and improving conditions in the US have continued into the current financial year. The benefits from new management to drive the top line and the improvements in the cost base from restructuring and closures are expected to provide positive momentum in the current year.

Our forecast changes primarily reflect the impact of the discontinued operations. We assume disposal of the Engineering business along with cash proceeds largely returned to shareholders in the year. There is no change to our expectations for FY25 in the Agriculture operations and joint ventures (JVs) combined, although we now expect central costs to fall more quickly. We introduce FY26 numbers, expecting an acceleration in margin recovery along with further reduction in the central costs, which the streamlining of the group will permit.

Exhibit 8: Forecasts (£m)

FY25e

FY26e

Old

New

Change

New

Speciality Agriculture revenues

90.8

73.8

-18.7%

79.0

Engineering revenues

64.0

0.0

0.0

Group revenues

154.8

73.8

-52.3%

79.0

Speciality Agriculture EBITA including JVs

6.0

6.0

-0.0%

8.0

Engineering EBITA

7.4

0.0

0.0

Central costs

(2.6)

(2.0)

-23.1%

(1.0)

Group EBITA

10.8

4.0

-63.0%

7.0

Net finance costs

(0.2)

0.2

0.4

Normalised PBT

10.6

4.2

-60.1%

7.4

Normalised undiluted EPS (p)

9.0

3.8

-57.5%

6.4

Dividend per share (p)

5.4

1.3

-76.5%

2.1

Net debt/(cash)

(7.4)

(7.3)

-2.0%

(9.6)

Source: Edison Investment Research


Valuation

We value the group through a peer-based valuation for the two businesses.

Agricultural operations

We value the Agricultural business against a peer group, albeit cognisant that these companies have a broad range of agriculture-associated operations. Using annualised figures for Carr’s and ignoring central costs, which management has indicated can be driven to zero post the disposal, suggests a valuation of c £80m.

Exhibit 9: Agricultural business valuation

Market cap

EV/EBIT (x)

(£m)

2025

2026

Anpario

73

11.2

10.5

Benchmark Holdings

268

19.3

16.1

Genus

1,086

15.1

13.4

Wynnstay Group

72

6.0

5.7

Average

12.9

11.4

Carr's agriculture and JV EBIT (£m)

5.9

7.4

Carr's agriculture and JV valuation (£m)

76.6

84.0

Source: LSEG & Analytics (12 December 2024), Edison Investment Research

Engineering operations

We have used a compendium of smaller UK-listed engineers along with the average EBIT from Carr’s Engineering business over the last two years, as we see this as a more realistic starting point for any purchaser. We note the significant variation in both margin and valuation within the peer group. Our EV/EBIT-based valuation comes to c £70m. While acquisitions are often at a premium to listed valuations, Carr’s Engineering business consists of high value-added robotic systems operations with strong nuclear capabilities as well as specialist but lower value-added fabrication and machining activities, which may limit any premium.

Exhibit 10: Engineering business valuation

Market cap

EV/EBIT (x)

Operating margin

(£m)

2024

2024

Avingtrans

129

14.3

5.2%

James Fisher and Sons

158

14.0

5.6%

MPAC Group

146

13.5

9.1%

Renold

110

5.2

12.1%

Somero

160

5.3

25.6%

Synectics

55

14.7

6.4%

Average

11.2

Carr's engineering businesses EBIT (£m)

6.3

11.2%

Carr's engineering businesses valuation (£m)

70.4

Source: LSEG & Analytics (12 December 2024), Edison Investment Research

Combining these two would suggest a total valuation of c £155m or 165p a share. Note that we take into account the balance sheet cash (£4.5m at the year-end).

Exhibit 11: Financial summary

£m

2023

2024

2025e

2026e

Year to 31 August

IFRS

IFRS

IFRS

IFRS

INCOME STATEMENT

Revenue

81.8

75.7

73.8

79.0

EBITDA (including JVs)

3.3

4.1

4.3

8.4

Operating profit (before amort. and excepts.)

2.8

2.2

4.0

7.0

Amortisation of acquired intangibles

(0.5)

(0.1)

(0.1)

(0.1)

Exceptionals

(3.2)

(3.6)

(1.0)

0.0

Reported operating profit

(0.9)

(1.4)

2.9

6.9

Net Interest

0.1

0.3

0.2

0.4

Profit Before Tax (norm)

2.9

2.5

4.2

7.4

Profit Before Tax (reported)

(0.8)

(1.1)

3.1

7.3

Reported tax

(0.1)

2.0

(0.4)

(1.3)

Profit After Tax (norm) - continuing businesses

2.9

2.3

3.6

6.1

Profit After Tax (reported) - continuing businesses

(0.9)

0.9

2.7

6.0

Average Number of Shares Outstanding (m)

94

94

94

94

EPS - normalised (p)

2.5

2.6

3.8

6.4

EPS - basic reported (p)

(1.0)

(6.1)

2.9

6.4

Dividend (p)

5.2

5.2

1.3

2.1

EBITDA Margin (%)

4.0

5.4

5.8

10.7

Normalised operating margin (%)

3.4

2.9

5.4

8.9

BALANCE SHEET

Fixed Assets

73.9

21.3

20.6

20.6

Intangible Assets

22.5

2.1

2.0

1.9

Tangible Assets

37.3

10.6

10.0

10.1

Investments & other

14.1

8.6

8.6

8.6

Current Assets

88.4

122.5

45.3

48.3

Stocks

26.6

12.1

12.9

13.6

Debtors

26.9

10.4

15.2

15.1

Cash & cash equivalents

23.1

13.7

16.4

18.8

Other

11.8

86.4

0.7

0.7

Current Liabilities

(39.2)

(45.5)

(14.2)

(14.0)

Creditors

(24.1)

(10.7)

(11.1)

(10.9)

Tax and social security

(0.1)

0.0

0.0

0.0

Short-term borrowings including finance leases

(15.0)

(3.0)

(3.0)

(3.0)

Other

0.0

(31.7)

0.0

0.0

Long-term Liabilities

(15.3)

(3.4)

(3.4)

(3.4)

Long-term borrowings including finance leases

(10.8)

(3.4)

(3.4)

(3.4)

Other long-term liabilities

(4.5)

(0.0)

(0.0)

(0.0)

Net Assets

107.9

94.9

48.4

51.6

Minority interests

0.0

0.0

0.0

0.0

Shareholders' equity

107.9

94.9

48.4

51.6

CASH FLOW

EBITDA

3.3

4.1

4.3

8.4

Working capital

(3.1)

3.2

1.0

(0.9)

Exceptional & other

(0.1)

(2.8)

(6.1)

(1.2)

Tax

(0.5)

1.5

(0.4)

(1.3)

Net Operating Cash Flow

(0.4)

6.0

(1.2)

5.1

Investment activities

(3.3)

(1.0)

(1.4)

(1.4)

Acquisitions/disposals

26.5

4.0

77.0

0.0

Net interest

(0.2)

0.1

0.2

0.4

Equity financing

0.2

0.2

0.0

0.0

Dividends

(4.9)

(6.0)

(69.9)

(1.2)

Other

(1.1)

(2.6)

(2.0)

(0.5)

Net Cash Flow

16.7

0.6

2.7

2.4

FX

(0.2)

(0.2)

0.0

0.0

Other non-cash movements

0.0

(0.1)

0.0

0.0

Closing net debt/(cash) including finance leases

(4.2)

(4.5)

(7.3)

(9.6)

Source: Carr’s Group, Edison Investment Research


General disclaimer and copyright

This report has been commissioned by Carr’s Group and prepared and issued by Edison, in consideration of a fee payable by Car’s Group. Edison Investment Research standard fees are £60,000 pa for the production and broad dissemination of a detailed note (Outlook) following by regular (typically quarterly) update notes. Fees are paid upfront in cash without recourse. Edison may seek additional fees for the provision of roadshows and related IR services for the client but does not get remunerated for any investment banking services. We never take payment in stock, options or warrants for any of our services.

Accuracy of content: All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report and have not sought for this information to be independently verified. Opinions contained in this report represent those of the research department of Edison at the time of publication. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations.

Exclusion of Liability: To the fullest extent allowed by law, Edison shall not be liable for any direct, indirect or consequential losses, loss of profits, damages, costs or expenses incurred or suffered by you arising out or in connection with the access to, use of or reliance on any information contained on this note.

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Copyright: Copyright 2024 Edison Investment Research Limited (Edison).

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General disclaimer and copyright

This report has been commissioned by Carr’s Group and prepared and issued by Edison, in consideration of a fee payable by Car’s Group. Edison Investment Research standard fees are £60,000 pa for the production and broad dissemination of a detailed note (Outlook) following by regular (typically quarterly) update notes. Fees are paid upfront in cash without recourse. Edison may seek additional fees for the provision of roadshows and related IR services for the client but does not get remunerated for any investment banking services. We never take payment in stock, options or warrants for any of our services.

Accuracy of content: All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report and have not sought for this information to be independently verified. Opinions contained in this report represent those of the research department of Edison at the time of publication. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations.

Exclusion of Liability: To the fullest extent allowed by law, Edison shall not be liable for any direct, indirect or consequential losses, loss of profits, damages, costs or expenses incurred or suffered by you arising out or in connection with the access to, use of or reliance on any information contained on this note.

No personalised advice: The information that we provide should not be construed in any manner whatsoever as, personalised advice. Also, the information provided by us should not be construed by any subscriber or prospective subscriber as Edison’s solicitation to effect, or attempt to effect, any transaction in a security. The securities described in the report may not be eligible for sale in all jurisdictions or to certain categories of investors.

Investment in securities mentioned: Edison has a restrictive policy relating to personal dealing and conflicts of interest. Edison Group does not conduct any investment business and, accordingly, does not itself hold any positions in the securities mentioned in this report. However, the respective directors, officers, employees and contractors of Edison may have a position in any or related securities mentioned in this report, subject to Edison's policies on personal dealing and conflicts of interest.

Copyright: Copyright 2024 Edison Investment Research Limited (Edison).

Australia

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London, WC1R 4PS

United Kingdom

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