Fenner issues 'mixed' first-quarter trading update

15th Jan 2014 07:04

UK manufacturer Fenner said its revenue and operating profit in its Advanced Engineered Products (AEP) arm will be "slightly more weighted" in the second half, reflecting the deferral of customer sales.Nevertheless, the division's trading and outlook are encouraging due to improving macro-economic conditions, the group revealed in a trading update for the period from September 1st to January 14th."AEP is continuing to target opportunities in the oil and gas and medical industries and, as previously indicated, has increased revenue investment in both human capital and innovation to underpin a continuation of the strong organic growth achieved in recent years in this division," the firm said.The Engineered Conveyor Solutions (ECS) division's results are expected to decline as a result of very strong trading in Australia in the prior year. ECS order intake rates also typically decline during the winter, Fenner noted."This year, the normal seasonality has combined with a number of factors, including corporate activity amongst our coal mining customers, to make ECS's forward order visibility in these markets more limited than usual," the firm said.Yet the ECS's trading and order book has benefitted from continued high levels of iron ore extraction in Australia, which have eased constraints on operational expenditure at mines. The guidance for the full year remains unchanged in constant currency terms.During the period, sterling continued to strengthen against all the major currencies in which the group's revenues are generated. Translation of the group's results for its financial year ended August 31st using rates as at the end of December would have reduced underlying operating profit by about £9m.Fenner concluded that its financial position "remains strong", with net borrowing in line with expectations.Jefferies recommended a 'buy' rating after the update, saying: "Fenner has this morning issued a mixed 1Q14 IMS, with a reasonably solid underlying performance, albeit with some ups and downs and a slightly disappointing AEP update. However, a larger-than-anticipated FX impact is likely to see consensus forecasts come down by 5%-6%, in our view. "While these downgrades are evidently unhelpful, we find it difficult to be overly critical - nevertheless, we suspect the share price is impacted in the near term."RD