Fenner fears the effect of strong pound

FENNER has warned a stronger pound could hurt earnings and said revenue in its polymer business was expected to be lower as some orders get delayed.
Fenners advanced engineered products unit makes goods ranging from high-pressure seals to silicone cathetersFenners advanced engineered products unit makes goods ranging from high-pressure seals to silicone catheters
Fenners advanced engineered products unit makes goods ranging from high-pressure seals to silicone catheters

Shares fell as much as 10 per cent in early trading, making the stock the top percentage loser on the FTSE 250 mid-cap index.

They recovered to close at 444.16p, down 2.43 per cent.

The Yorkshire company, which generates about 65 per cent of its group sales in US and Australian dollars, said if results for the year ended August were adjusted for the pound as at December 31, underlying operating profit would have been lower about £9m.

Hide Ad
Hide Ad

The pound has gained 6.5 per cent against the dollar in the last six months.

Nicholas Hobson, chief executive, told the Yorkshire Post: “Clearly the pound has been strong through the year... That has translated into our results.”

He added: “My personal opinion is I am not sure there is any particularly good reason why the pound is as strong as it is at the moment.

“I would be surprised if that was to be a long-term trend. I expect the dollar to gain strength against the pound in the future.”

Hide Ad
Hide Ad

Fenner is based in Hessle, on the outskirts of Hull, and manufactures industrial belting and other polymer-based products for global markets. Its two biggest markets are in North America and Australia.

Mr Hobson said the weakening of the Australian dollar against the American dollar will improve the economics of mining in Australia, which in turn will lead to improved demand for Fenner’s products.

Demand has been lower since the fall in commodity prices in autumn 2012 following speculation about a slowdown in China’s economy. Mining companies responded by cutting costs.

In a first quarter trading statement, Fenner said trading in its engineered conveyor solutions unit in the period from September 1 to January 14 was in line hywith management expectations but below the levels of the same time in the last financial year due to very strong trading in Australia.

Hide Ad
Hide Ad

The company added that continued high levels of iron ore extraction in Australia and further progress in hard rock mining in other regions have benefitted trading and its order book.

Fenner said the seasonal decline in order intake rates combined with corporate activity among coal mining customers made forward order visibility more limited than usual.

The unit makes up around two thirds of group sales.

The company’s advanced engineered products unit makes goods ranging from high-pressure seals to silicone catheters. It makes up the remaining third of sales.

Fenner said trading and outlook are encouraging and have reflected generally improving macro-economic conditions.

Hide Ad
Hide Ad

The unit is continuing to target opportunities in the oil and gas and medical industries and has increased investment in new staff and innovation to support strong organic growth. But it has seen customer sales deferred from the first to second half of the year.

Mr Hobson said Fenner is “quietly optimistic” about improving levels of economic activity in the global economy, but he added “it’s too early to declare victory and let the good times roll”.

Analysts at Citi said FX headwinds have persisted and are likely to be a drag on profits. “Despite this, we remain reassured about the underlying trends in both businesses, with the ECS business specifically continuing to show sequential improvement in key regions. We retain our ‘buy’ rating,” they said.

Analysts at Jefferies said Fenner’s statement showed “reasonably solid” underlying performance, albeit with some ups and downs, a slightly disappointing AEP update and a larger-than-expected FX impact.

Hide Ad
Hide Ad

“We find it difficult to be overly critical – nevertheless, we suspect the share price is impacted in the near term,” they said.

“Fenner continues to have decent recovery potential, in our view (particularly when we consider this relative to the sector).

“Ceteris paribus, FX will, unfortunately, impact this recovery somewhat in the current year; however, we believe the group is still in decent shape operationally and financially.

“We would view any concerted weakness as an especially good buying opportunity medium/long-term, as the investment case has not fundamentally changed.”

Jefferies retained its ‘buy’ stance, while Liberum cut its rating on the stock to ‘hold’ from ‘buy’.

Related topics: