 Yes, it's a good write-up and very comprehensive. I only hold a few but may look to top up on apathy etc. I would guess today is not the day to buy.
Here's the whole thing:
A three-point plan should send these shares soaring
Bargain Shares 2025: Disposals, a tender offer and growth have the potential to turn things around for investors
Share price: 133p
Bid-offer spread: 131-135p
Market value: £126mn
- Pro-forma net cash of £83.5mn (88p)
- Tender offer to return £70mn
- Valued on five times forecast operating profit to enterprise valuation for 2025-26 financial year
- 4 per cent target dividend yield
Carr’s Group (CARR) is unlocking material shareholder value through the recently announced £75mn disposal of its engineering division to Cadre Holdings (US:CDRE), a $1.5bn (£1.2bn) market capitalisation New York Stock Exchange listed group that specialises in the manufacturing and distribution of safety products.
Investors have yet to fully factor in the significance of the disposal, nor for that matter how it has transformed the agriculture group’s finances, so offering the opportunity to exploit the information void in the market.
Carr's is a leading maker and provider of value-added products and solutions, holding market-leading brands and robust market positions across the agriculture and engineering sectors, supplying customers around the world. The agriculture division makes and sells research-proven livestock supplements in block, bagged mineral and bolus formats. The engineering division manufactures vessels, precision components and remote handling systems, and provides specialist engineering services, for the nuclear, defence and oil and gas industries.
Having sold its agricultural supplies division for £44.5mn in October 2022, Carr’s management has sought to create incremental shareholder value in both remaining divisions by capitalising on revenue growth opportunities, driving down costs and delivering efficiencies. However, it became clear attempting to drive performance across two divisions was an inefficient and generalist operating model, particularly due to the absence of synergistic benefits and the resulting central overhead costs.
So, Carr’s has taken advantage of favourable market conditions to sell its engineering division for £75mn, representing a multiple of 10 times annual operating profit of £7.3mn and a near-50 per cent premium to the net assets held in the businesses on a debt-free, cash-free basis. The resulting £24mn gain boosts Carr’s pro-forma net asset value (NAV) to £119mn, in line with its current market capitalisation of £126mn.
Cash windfalls transform Carr’s finances
The effect on Carr’s financial position is material as it boosts the last-reported net cash of £4.5mn to £79.5mn, and that sum excludes £4mn of cash proceeds that Carr’s has banked from the disposal of non-core properties since 31 August 2024.
In addition, the sale of three non-core properties worth around £3mn are progressing, as is the disposal of the North Tyneside-based Chirton engineering division, a specialist precision machining business that reported a small loss on revenue of £7mn in 2024. There should be the potential for Carr’s to release at least £5mn of net sales proceeds within the next six months, and possibly more.
The board intends to return £70mn of the bumper cash pile to shareholders through a tender offer, the date of which has yet to be announced. It means that Carr’s will retain pro-forma net cash of around £12mn (after transaction costs), a sum that could rise to £17mn if the other disposals proceed as planned. Post the tender offer, Carr’s market capitalisation of £126mn will fall to £56mn, implying enterprise valuations of £44mn (adjusted for pro-forma net cash of £12mn) and £39mn (once the remaining non-core assets are sold).
That’s an incredibly modest valuation for the retained agriculture businesses, which analysts at Edison Investment Research believe can boost their pre-tax profit contribution by two-thirds to £4.2mn in the 12 months to 31 August 2025 and deliver another step-change in profitability in the 2025-26 financial year, too.
A pure-play agriculture business with strong prospects
Operating manufacturing sites across three different countries, and selling into more than 20 countries under five market-leading brands, the agriculture division enables farmers to optimise forage and grass-based nutrition systems, and helps them raise healthy animals in an efficient, high-welfare environment and in a responsible way. The nutritional supplements not only provide animals with the appropriate quantities at the correct times, but deliver a return on investment to the farmer.
So, to maximise growth potential as a pure-play agriculture business, the business has been reorganised into a single, global specialist operation with an integrated leadership team. Management’s strategic plan is designed to drive shareholder returns and growth by leveraging feed supplement expertise as a global specialist for extensive, grazing-based food systems. The new strategy has three elements:
Improve operating margin across the global portfolio.
Deliver profitable commercial growth in the core business.
Expand into new, extensive, grazing-based growth geographies.
Importantly, progress is being made across all three pillars, including:
The introduction of cost improvement and efficiency programmes.
Local personnel changes made at the US Oklahoma and UK Animax manufacturing sites.
A new distribution model for the New Zealand market.
The closure and sale of the assets of Afgritech, a US business engaged in the supply of commodity feeds to the dairy industry. Afgritech has been materially impacted by movements in the canola commodity market and reported an adjusted operating loss of £0.5mn in 2024.
In terms of the trading outlook, the directors expect underlying market conditions in the UK to continue to improve in the near term, with US market contraction anticipated to end this year and rebuilding of cattle herds to commence thereafter.
A step-change in profitability
For the current financial year, analysts at Edison expect the group’s retained agriculture businesses to report revenue of £73.8mn and operating profit (pre-central overheads) of £6mn. Central costs are being right-sized through a £1mn cost-saving programme, so it’s reasonable to pencil in overheads of £2mn. Add in net interest income of £0.2mn and Edison arrives at an adjusted pre-tax profit forecast of £4.2mn, or two-thirds higher than profits in the 12 months to 31 August 2024.
Moreover, assuming single-digit revenue growth in the 2025-26 financial year, and factoring in ongoing cost-efficiency programmes, Edison believes that the operating margin will improve by two percentage points to 10 per cent and boost operating profit (pre-central overheads) by a third to £8mn. At the same time, central overhead costs are predicted to halve to £1mn, and net interest income should double to £0.4mn, hence why Edison expects pre-tax profit to rise more than 75 per cent to £7.4mn, or three times the level of profit in the 2024 financial year.
To recap, the retained operational businesses are effectively in the price for as little as £39mn, or five times group operating profit estimates of £7mn (post central overheads of £1mn) for the 2025-26 financial year.
To put Carr’s low rating into perspective, the company's closest comparable is another company I am keen on, Anpario (ANP:430p), an independent manufacturer of natural sustainable feed additives for animal health, nutrition and biosecurity. Its shares are trading on 11.5 times current-year operating profit estimates to enterprise valuation, and are still attractively priced. For good measure, Carr’s future payout policy is targeting an average dividend yield of 4 per cent.
As the penny drops, expect Carr’s shares to re-rate sharply to narrow the material ratings gap with peers. The astute investment team at small-cap fund manager Harwood Capital certainly see value in the shares, having raised their stake in Carr’s from 19.1 to 21.1 per cent in January. Buy. |
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