Upgrades as Fenner shrugs off downturn

The update prompted upgrades from brokers, with shares gaining 6.7 per cent to 438p.

The Hessle, East Yorkshire-based company told shareholders at its annual meeting yesterday it has started its new financial year well, with bulging order books and little sign of a squeeze from the global downturn.

“Fenner has continued to experience the strong levels of demand seen at the end of the last financial year,” said the company. Profitability in its first quarter, spanning September to December, was “significantly” above a year earlier.

The company, which has been on an acquisition spree over the past 18 months, added most of its growth has been generated organically.

“The effect of businesses acquired has complemented our growth profile and is helping to establish a broader, more resilient group,” it said.

Its conveyor belting arm has been boosted by strong demand from the mining industries, where it is a major supplier of belting and services to coal and ore miners. Fenner added profits have been lifted by higher factory use and efficiency.

Its advanced engineered products arm has grown profits and revenues, due to high demand and market share gains in oil, gas, medical and industrial sectors. The division, which makes products such as high-pressure seals used in oil wells, has seen its growth rate tempered slightly by “moderate” de-stocking. But finance director Richard Perry said this is nowhere near on the scale of the de-stocking it saw in 2008.

He said Fenner’s growth shows little sign of waning, despite eurozone debt worries.

“The reality is our group only has about 10 per cent of its business by destination exposed to Europe,” he said. “What we’ve seen since last autumn is the commentary and outlook for the American economy become a little bit more positive.”

He said the major mining companies which rely on its conveyor belting have “not missed a beat”.

“We’ve basically had to encourage some fairly significant and chunky upgrades in (analysts’) expectations.”

Fenner said net debt is in line with its expectations, and Mr Perry added it has about £25m to £30m of cash to spend. “We would expect to continue to make announcements about every four months (on acquisitions).”

Liberum Capital analyst Ben Bourne said Fenner’s current valuation is “a 10 per cent discount to the sector and too low for an improving business with a world-leading market position and exposure to resilient end markets”.

He added: “Fenner is a global market leader exposed to the durable growth drivers of rising global energy demand, ageing populations and emerging market consumption.”

Liberum upped its full-year earnings per share estimate by six per cent to 33p. It estimates full-year net debt of £105m, from £109m. “Management are proving to be strong commanders of the capital at their disposal,” said Mr Bourne.

Brokerage Collins Stewart raised Fenner’s price target by 13 per cent to 473p.

Singer Capital Markets analyst Jo Reedman said the statement indicates strong demand and that management expects to make continued good progress in 2012. “The tone of the statement suggests to us that consensus forecasts of nine per cent sales growth and 10 per cent growth in operating profit for the year could prove a little light,” she said.

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