Avon Protection Share Discussion Threads

[discodave4] 07/4/2020 12:12

Agree, it does seem like the market is getting way ahead of itself.There will be some pretty grim numbers coming, starting with US jobless claims and UK GDP this Thursday.Do you know if the UK GDP number is just for Feb or Q1? - guess too early for month of March?. If just Feb then pre lockdown so may not be too bad.

[johndoe23] 07/4/2020 11:27

Regretting not buying in at 1950p! FOMO can be a dangerous emotion at the moment!!

[discodave4] 07/4/2020 11:07

Should have gone in harder at £24, oh well.

[jeffian] 01/4/2020 19:24

I don't buy it for a second - maybe for economic reasons if there is a serious recession but not a "peace dividend" - but if there are to be cuts in US military procurement, can you really see it being in personal protection equipment which is a fleabite compared to deferring the odd aircraft carrier or few warplanes?

[discodave4] 01/4/2020 18:32

HiMy apologies misread your post, okay 50% procurement cut.....still a figure that is highly unlikely IMO. If you took the average of the total DoD budget cuts for the last 17 years (5%) that's equivalent to a 20% cut in procurement (based on your 12.5% total budget cut). Don't know what your hit to total income would be then, but either way it's predicated on there being a significant cut in procurement rather than cutting other parts of the overall DoD budget which wouldn't impact on protection equipment spend.You now mention that military personnel could grow which sort of contradicts your negativity in terms of procurement spend!. Yes milk price is at a low but demand is at a high, dont need sales reps these days driving around to sell products, would imagine their client base comprises of long standing repeatable customers anyway, so don't see any material impact as yet due to Covid-19. As you say it's only a small portion of their income stream but it does have the highest profit margin (if I recall correctly).All the best.

[jgunnsm2] 01/4/2020 17:33

Thanks DiscoDave4. Procurement could be 50% cut. Which would be -12.5% of the total defence budget spend. Half the defence budget is troops which could grow to take up slack in unemployment. Just examining the risks. Milk commodity prices have actually fallen on the past 3 months and the Avon Rubber sales force are unlikely to be driving round the countryside making calls to sell milkrite equipment so there is a risk to profits there but it's becoming less of the portfolio now so chose to ignore it,

[discodave4] 01/4/2020 12:06

Can you explain why you think the US DoD will reduce their budget by 50%?Since 2003 their spend has only ever reduced year on year on three occasions (2011-12, 2012-13, 2014-15) and by 5%, 8.5% and 2% respectively. Your 50% is a ridiculous cut IMO and their only budget that has or is likely to be reduced by that amount is the OCO (overseas contingency operations) which is only about 10% of their total budgeted spend for 2020 and 2021.Please note that during the financial crash they did not cut their spending so see no likelihood of a 50% cut, ridiculous IMO.

[discodave4] 01/4/2020 08:35

The positives: Niche market leader, barriers to entry, long term contracts (for protection. equipment 4 to 10 years), excellent margins. At the moment I see minimal impact from Covid-19, retail milk demand is above normal at the moment and I have not heard of any issues in terms of meeting this demand and with 21% profit margins what's not to like. You keep banging on about the US DoD cutting back spending, why with zero interest rates and Trump keen to fund via borrowing. They have just been awarded a decent contract with more to come IMO plus its worth emphasising 'RESPIRATORS'.I wish you all the best as clearly this is not for you.

[hawaly] 01/4/2020 08:33

Geopolitics won't just fold up and go home.

It's not hard to see it still in action - "The Chinese Virus" , "The Wuhan Virus", efforts to emasculate Huawei.

Homes fit for heroes, the peace dividend - all laudable sentiments - soon trodden underfoot by the re-emergence of animal spirits after the calamity.

GLA
😎

[jgunnsm2] 01/4/2020 08:11

US currently spends more on the military than the medicare system. Do you think any party whether it be Republican or Democrat will be allowed for this to happen in the next five years? Ahem! Indeed. I don't hold a position BTW just looking at this on my watchlist. One to avoid at the moment and we haven't even had the COVID-19 trading update which will quite probably mention US Governmental department shutdowns.

[jeffian] 31/3/2020 23:03

"Be careful- peace dividend when not if it comes will kill prospects of future military contracts and orders."

Ahem! Excuse me? This "peace dividend"?

Syria
Ukraine
Turkey/Kurds
Libya
Iran
Iraq
North Korea
Yemen
Somalia
South Sudan
Palestine
Lebanon
Rohinga/Myanmar
Congo
Boko Haram in Nigeria
Central African Republic...........di dah, di dah, di dah.

I don't think so.

[jgunnsm2] 31/3/2020 19:52

Just looking at Goldman Sachs forecast of 15% unemployment in the US. That is going to a huge federal budget bill. In 2018 (I have not got 2019) social security budget $982 Bn. Assuming 5% unemployment if this is to rise to 15% then the unemployment cost is an extra $2Tn. The Defence spending described as discretionary was $623Bn and about 25% of that was procurement. One would think the defence procurement budget would likely to be cut deep for 2021 and beyond. Some military equipment and hardware might have a lifespan so have to be replaced. If I was able to speak to Avon Rubber I would like to know how much of the equipment they supply has a shelf life and to what date. Looks to me the US Peace Dividend is going to be large and how much that will affect Avon and the timeline is beyond my intel but I would want to know more details to help make a detailed investment judgement. What I do know from various presentations is that 90% of the new ballistics division is to the US military and Masks is about 65% but for my purposes will assume all markets will have a peace dividend. Current medium term outlook for revenue per annum for the masks piece is around $85M to $120M. New ballistics is $85M. Milk is about $50M. If military procurement is cut by 50% and all lines equally affected medium term revenue could be between $135M to $170M assuming milk is a constant. Sharecast has revenue £266M and profit £45M for year ending Sep 2021. If revenue was to be $170M for 2022 as a result of the peace dividend we are looking at a forward PE of roughly 30 at today's market cap and above 40 for revenue at lower estimates.

Anyone have more information on Avon Rubber or share thoughts?

[suetballs] 27/3/2020 11:47

Good point Jgunn. I do hold bae.
Suet

[jgunnsm2] 27/3/2020 10:26

Be careful- peace dividend when not if it comes will kill prospects of future military contracts and orders. Countries will instead spend any budgets preparing for a better response to the next pandemic. Quinteq BAE Cohort TPG like Avon to name a few will all suffer too. Good luck. Stay safe

[suetballs] 27/3/2020 08:42

Looking to buy here.
Suet

[mayers] 26/3/2020 17:11

Thank you Jgunnasm2, a very illuminating comment. Years ago when items in rubber were more widespread deterioration in time due to the rubber perishing was common, hence the substitution in many cases by plastics which have of course brought their own problems. I recall the safe life-length for tyres even with low mileage and if stored unused. The pliability of the material obviously has advantages for the milking procedures.

[jgunnsm2] 26/3/2020 12:15

Found this

Rubber is the main ingredient for most gas masks; either natural, butyl or silicone rubbers. Increasingly, gas masks contain a mixture of rubber types to obtain certain properties such as softness and resistance to chemical warfare agent breakthrough. Although your gas mask is designed to be tough, the rubber can deteriorate over time in a number of different failure modes. Luckily, you can forestall this process with proper storage and maintenance.

[jgunnsm2] 26/3/2020 11:59

Cheaper oil does reduce the cost of synthetic rubber but natural rubber is stronger but more costly. Good question for an AGM.

[mayers] 26/3/2020 11:51

Does the low oil price reduce their raw material costs or is the rubber wholly synthesised?

[johndoe23] 26/3/2020 09:42

They should sell off the milk business

[jgunnsm2] 26/3/2020 09:16

I have this on my watch list but I can see some bear points emerging:
1. Milk prices have fallen nearly 20% since highs in February and at levels last seen Sep 19.
2.COVID-19 will also impact the ability of the sales force to visit farms to sell the milkrite / InterPuls equipment in Europe and US. Likely too the farmers will not being making big purchase decisions for some time given the uncertain economic backdrop.
3. US defense spending likely to be cut as budget relief whoever is President.
4. Should a Democrat become President the military budget will be cut deeper.
5. There will need to be a peace dividend in All counties after these fiscal stimulus packages.
6. From a marketing standpoint shame Avon are not the supplier of medical masks but 3M who Avon bought the ballistic company from.
I am happy to sit on the sidelines for now. Undoubtedly a well run company. Anyone have some bull points?

[devilsprofessor] 25/3/2020 19:10

AVON is staying strong. Not a bad high today when you compare to where it was pre COVID-19. Happy to sit and watch a good company do well long term ?

[18bt] 20/3/2020 07:54

IC tip today

[mayers] 17/3/2020 12:55

Thanks for your confirmation Stewpot3.