Conveyor belt of sales shows no sign of slowing down for Fenner

The group, based in Hessle, near Hull, said pre-tax profits were 57 per cent higher at £41.7m in the six months ended February 29 versus a year earlier.

Sales at Fenner, which makes belts mainly used in mining, were up 24 per cent at £412m. Fenner hiked its interim dividend 32 per cent to 3.5p per share.

“We anticipate being strongly cash-generative and being able to fund acquisitions from internal resources,” said chief executive Nick Hobson. “We’re in a good spot right now.”

The results and buoyant outlook prompted a raft of upgrades from brokers.

N+1 Brewin now sees Fenner generating profits of £100.5m on £825m revenues this year, up from its previous forecast of £97.8m profits and £820m turnover.

“Fenner has an enviable element of sales whose end markets we consider to be resilient or growing, i.e. thermal coal production, unconventional drilling and medical,” said analysts at the brokerage.

“We feel that the group has strategically positioned itself to generate significant further upside, thanks to increasing systems-based revenue in the US and increasing momentum and market share gains in a strong Australian market.”

The company’s conveyor belting arm, which accounts for 71 per cent of group revenues and two thirds of profits, was buoyed by demand from the mining and energy sectors.

It lifted profits 62 per cent to £38.9m and revenues by a quarter to £295m.

Fenner said its decision to invest in capacity in recent years paid off, helping it take market share. Its advances in services helped make up for weak demand from construction markets in Europe.

Strong appetite from the coal mining sector boosted its belting work in the Americas, and Fenner said it is gaining market share in Asia Pacific.

Mr Hobson said even China’s slowing growth or the increasing popularity of shale gas are unlikely to derail Fenner’s progress.

“The prospect of slowing growth in China is not that scary for us because at the end of the day all we are doing is continuing to benefit from the underlying growth in energy demand in China,” he said.

“India and China are going to need coal for the next 20 to 30 years and that’s what drives us.”

He added shale gas extraction is a “double-edged sword”.

“We do a reasonable amount of business in shale; we make a number of high performance seals which are used in fracking. Clearly there’s a lot of speculation about the substitution of shale gas (in place of) coal.

“But recent data said that the projected consumption of coal by China and India will by 1.2bn tonnes per year over the next five years.”

The group’s advanced engineered products arm, which includes seals and medical devices, hiked underlying profits 23 per cent to £20.5m on revenues up 20 per cent to £117m.

Numis analyst Scott Cagehin said: “Given Fenner’s exposure to strong end markets and good operational efficiencies we remain positive for its full-year 2012 prospects and beyond.”

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