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Financial Highlights: Group sales increased by 8% to £1.608 billion compared to Q3 2011, half of which was organic growth. Profit increased slightly to £114 million compared to £113 million in Q3 2011. The trading margin reduced to 7.1%, largely as a result of lower profitability at its Driveline division.
Third quarter trading update: The announcement raised investor nerves, with the share price down by over 4% in early trading. Strong automotive demand in the US and China and continued growth in civil aerospace had been offset by more challenging European automotive and industrial markets. Management outlook comments noted that "macroeconomic conditions have deteriorated in recent weeks and some softening in order books is now evident." Furthermore, the board also noted that "the fourth quarter is anticipated to show the usual seasonal improvement, although the softening markets are expected to have some impact on performance." In all, bolstered by a recent strengthening of its aerospace business – it completed the acquisition of Volvo Aerospace on the 1st October - and with exposure to both expected long term Chinese growth and the relatively resilient US economy,
Company overview GKN is a global engineering business serving the automotive, aerospace and land systems markets. It is headquartered in Redditch, England, and was formerly known as Guest, Keen and Nettlefolds. It can trace its origins back to 1759, the birth of the industrial revolution. It has operations in more than 30 countries, around 50,000 employees in subsidiaries and joint ventures and is listed on the London Stock Exchange.
Nigel Stein, Chief Executive, GKN plc, commented: "In the third quarter, the Group's global footprint with its exposure to the strong markets of North America and China, as well as civil aerospace, allowed us to offset weaker European markets. Profit was affected by expected seasonal factors and operational issues in Driveline. Looking forward, European markets seem to be softening further. We continue to focus on driving performance, keeping close control of our cost base."
Outlook Macroeconomic conditions have deteriorated in recent weeks and some softening in order books is now evident, particularly regarding European automotive and industrial markets. Other automotive markets and the civil aerospace market are expected to remain solid. The fourth quarter is anticipated to show the usual seasonal improvement, although the softening markets are expected to have some impact on performance.
nterim Management Statement 16 October 2012 GKN plc, the global engineering business that serves the automotive, aerospace and land systems markets, today issues the following Interim Management Statement covering the period since 1st July 2012. Markets Since GKN's Half Year Results announcement in July, demand has remained broadly in line with expectations with more challenging European automotive and industrial markets being offset by strong automotive demand in the US and China and continued growth in civil aerospace. Group Results Group sales in the three months ended 30 September totalled £1,608 million, an 8% increase over the comparable period in 2011, half of which was organic growth. Third quarter trading profit increased slightly to £114 million (2011: £113 million) although trading margin reduced to 7.1%, largely as a result of lower profitability in Driveline. This arose due to the expected seasonality in the Getrag all-wheel drive business and costs associated with fluctuations in demand. In September, the Group's margin returned to a level comparable to the first half.
http://www.investegate.co.uk/Article.aspx?id=20121016070000P2FA7
FTSE 100 engineering firm GKN said it had completed the acquisition of Volvo Aero, the aero engine division of AB Volvo. Volvo Aero designs, engineers and manufactures components and sub-assemblies for aircraft engine turbines. The acquisition was announced back in early July. GKN said the combination of its aerospace division and Volvo Aero would create a world leader in both aero structures and aero engine components. GKN paid around £633m for the firm with the aid of a £140m placing back in July of new shares at 200p each with institutional investors. The rest of the money came from new debt facilities. The placing represented about 5% of the firm's market capitalisation based on its July 4th 2012 closing share price.
Sure, another round of quantitative easing from the US Federal Reserve means a welcome boost for GKN. But it's the drive towards less cyclical aerospace work which is more significant, and the shares - which are cheap compared to aerospace peers - have further to run before fully reflecting that shift........but as always dyor and good luck..
In the meantime - and despite the rerating since the Volvo deal - GKN's shares trade on under nine times JP Morgan Cazenove's 2012 estimate of adjusted earnings of 26.6p, and that falls to under eight times based on 2013's adjusted forecast earnings. That, however, is near the bottom end of the historic valuation range and represents a substantial discount to the share price rating of aerospace peers such as Senior and Meggitt - their shares trade on 13 times forecast end-2012 earnings. The broker also estimates that the shares are worth 280p after applying conservative mid-cycle share price multiples, and 290p on a sum-of-the parts basis. Meanwhile, a prospective yield of over 3 per cent looks good - the average yield in the aerospace sector is just above 2 per cent.
Still, a sharp slowdown in car production among European volume manufacturers has caused concern and the highly cyclical automotive industry generated 59 per cent of sales last year. But GKN has a well-established habit of outperforming global car production. In fact, first-half organic sales at the core Driveline division rose 9 per cent and trading profit jumped even more to £121m. GKN beat the market in North America and China, and in Europe, too, where more resilient premium brands such as BMW and Audi account for 40 per cent of sales. Increasing demand for sintered components also delivered significant gains for the Powder Metallurgy (PM) unit. Industry forecasts point to further declines in global light vehicle production, so PM sales will probably slow. There could also be some read across from BAE's planned tie-up with EADS. That move may pave the way for "value creation across unloved, deep value stocks weighted down by pension liabilities," believes Oliver Wynn-James, analyst at broker Panmure Gordon - he sees GKN in that category. "This opens up a multitude of possibilities for companies like GKN, which could combine large operating businesses with strategic peers, and then service the pension issues at a removed level." Ideas for unleashing value in this way include flipping the aerospace business into another venture, or even selling it and settling the £926m pension deficit, which currently absorbs cash flow. All brave stuff - although possibly a distant prospect.
Keen readers of the financial pages will know that GKN has the automobiles & parts sector largely to itself. Yet GKN's purchase of Volvo's aerospace division in July is a game-changer that increases its already substantial footprint within the resilient aerospace sector - indeed, making lightweight composite wing parts for Airbus and Boeing generated sales of £770m in the six months to end-June. In fact, the shares have jumped about 30 per cent since the deal was announced yet, when compared to aerospace peers, they remain undemandingly rated. Bought for much less than expected - £633m - Volvo gives GKN a complementary lightweight engine components business. It also means that civil aerospace - which grew sales 16 per cent at the first-half stage - will contribute more than two-thirds of divisional sales next year. Overall, higher-margin aerospace work should generate around 40 per cent of group trading profit, too - about £270m - and, with both Airbus and Boeing scrambling to fill a record backlog of orders, that should hit £295m in 2014. Last year it was just £166m. That easily offsets the decline in demand for US military aircraft like the C-17 transporter and F-15 and F-18 fighter jets. Volvo also adds much more work on propulsion systems used on every one of Airbus' and Boeing's civil aircraft programmes and on almost every engine choice. That inevitably increases the amount of revenue generated per plane, which could increase further as new jets like Boeing's 787 and fuel-efficient narrow body planes ramp up production. It should also generate lucrative high margin aftermarket work. True, Volvo's operating profit margin - 5.2 per cent in 2011 - falls short of GKN's high standards, yet integration should be rapid and management believes cost savings and operational improvements will get that up to its divisional target of 11-13 per cent next year. That sounds plausible - in February, chief executive Nigel Stein introduced tougher margin targets, just a month after taking the wheel, and is making good progress.
CONT At a share price of 220.6p (last seen) the company has cash valued at 6p per share; total assets under management worth 320p per share; balance sheet attributable assets valued at nearly 75p a share; net tangible assets worth nearly 18p a share; annual operating cash of £454 million (covering the annual dividend cost of £85 million more than five times. Most strikingly, comparable interim operating margins rose from 7.5% to 9.2% and net margins from 5.75%. Trading showed North American car production up by more than a fifth, with up-market vehicles in demand. GKN Driveline sales rose by 9% to £1.66 billion. The group’s powder metallurgy business rose a quarter to £47 million. It is to be understood that GKN equity is geared by 65% of debt. We are told that when the takeover of the Volvo business is finally done it will pause from further acquisitions in order to enhance earnings and pay down debt. GKN (GKN) was tipped here twenty four months ago at 96p. Last seen, the shares at 220.6p (having peaked at 237p in February) have seen a capital gain of 130% plus paid out dividends. With the above considerations and on estimated earnings of 25p for this year and 28p next year, the shares are on prospective price to earnings ratios of 8.6 and 7.5 and forecast dividend yields of 3.3% and 3.8%. They look underpriced for a company with an increasing aero business. A Buy.
Buy GKN (GKN) at 220.6p I have been keen on GKN for some time, having tipped it originally in August 2009 when it seemed underpriced against its fundamental attractions. Those attractions have recently increased; first with the announcement to acquire the Volvo aerospace business and second with an assessment of the latest six months results to 30th June 2012. The acquisition of the Volvo business should transform GKN. The company’s existing aerospace division accounts for just over a fifth of group sales and profits. It is the activity with highest trading margin at 11.2%; the average trading margin is 8.5% and the trading margin on the driveline business (nearly half of group sales) is merely 7.1%. So, one may see that an aerospace acquisition would on the face of it, increase average trading margins significantly. We are told that such an acquisition would mean the enlarged aero space contributing 40% of earnings. Results for the six months to June were also very encouraging. Sales revenue increased by 16%. Reported statutory operating profit increased by 43% (31% underlying) earnings by 38% (32% underlying) and the dividend payout was increased 20%, reflecting both performance and confidence. Despite headwinds from Europe, management had unchanged expectations for the year as a whole and expected another ‘good year’.
GKN: Jefferies raises target from 220p to 275p, buy rating maintained.
GKN BENEFITS FROM RE-RATING COMMENTS GKN hit its highest since March this month after JPMorgan Cazenove, its joint house broker, saw scope for a re-rating. The engineer’s purchase last month of Volvo’s aero engine business for £633m means aerospace will provide about 40 per cent of group profits next year, JPMorgan said. “GKN is widely regarded as an auto components business,” said the broker. “Typically, aerospace companies trade on significantly higher valuation multiples than auto-related companies.” Yet GKN was being valued at just 6.8 times 2013 earnings and 0.6 times sales, making it among the cheapest stocks in the sector, JPMorgan told clients. “We believe current valuation of the group fails to fairly reflect the marked improvement in profitability or the richer business mix as a result of the acquisition of Volvo Aero.” JPMorgan put a 255p target on GKN shares. Source: http://www.google.com/url?sa=t&rct=j&q=jpmorgan%20put%20a%20255p%20target%20on%20gkn%20shares&source=web&cd=1&cad=rja&sqi=2&ved=0CB8QFjAA&url=http%3A%2F%2Fwww.ft.com%2Fcms%2Fs%2F0%2F81fd895e-df99-11e1-9bb7-00144feab49a.html&ei=52M_UIyVGqi-0QWhzIGoAQ&usg=AFQjCNF3DyYhDygMD5-cajtfzX9iOZN9nw P.S. Here's some links about SCLP, one of the hottest stocks at the moment: http://www.euroinvestor.com/community/discussionthread.aspx?iid=2467508&threadid=256596&mode=2 http://www.euroinvestor.com/community/discussionthread.aspx?iid=2467508&threadid=255276&mode=2 http://www.euroinvestor.com/community/discussionthread.aspx?iid=2467508&threadid=257550&mode=2
Questor says "BUY" QUESTOR SHARE TIP: GKN OPERTATES IN GROWTH MARKETS First-half numbers from specialist engineer GKN beat market expectations, with pre-tax profits leaping 43pc. Nigel Stein, chief executive, also gave some upbeat interviews, indicating that, while many of GKN’s customers were cautious about the rest of 2012, “no one is pressing alarm buttons” about the wider economy. This is good news for GKN as many of its products are used in markets with impressive long-term growth, such as the automotive, agricultural and commercial airline industries. The number of vehicles on the road globally, for example, is expected to rise by 22pc between 2012 and 2017, according to industry body LMC Automotive. Of course, markets in Europe are expected to remain weak, but Asia will be robust. In the six months to June, sales rose 16pc to £3.5bn and pre-tax profits jumped to £289m from £202m. The dividend interim was raised by 20pc to 2.44p and it will be paid on September 24. The numbers resulted in one of the most bearish analysts on the shares upgrading his rating to hold. Last month, GKN made a good purchase – the aero engine division of Volvo. The business specialises in engine parts for commercial airliners, so is a good fit for GKN’s operations, which is focused on structural engineering. The shares are sitting at about the same level they were following the Volvo deal announcement, after drifting for most of the last month. The results failed to give the shares a lift, but Questor still thinks the shares represent reasonable value, given the prospects for its end markets. Trading on a current-year earning multiple of 8.5 falling to 7.3 and yielding 3.4pc Questor says buy Source: http://www.telegraph.co.uk/finance/markets/questor/9450266/Questor-share-tip-GKN-opertates-in-growth-markets.html
i'm expecting a push on to 245/250p from here and if it breaks up through that then it will go into a new trading range which is what i am expecting it to do!
Pre-tax profits were up 33% to £266m as sales rose 16% to £3.46bn. This allowed the company to push up the interim dividend 20% on the year before, to 2.4p. However, the results were flattered by the impact of the 2011 fire at the Gallatin metal plant in Tennessee. Turner, who became a board member in 2009, now holds a total of 260,000 shares in the company, equal to 0.016% of the issued share capital.
GKN Chairman, Mike Turner, has celebrated a strong set of first half results with the purchase of 100,000 shares in the UK engineering giant. The shares were bought for 210.70p each, costing Turner, who took on the role of Chairman in May of this year, a total of £210,700, just one day after the results were announced. The company saw profits jump in the first half as it benefitted from a broad exposure to global markets.
Positive Points: Sales increases and profit margin progression for each of its four Divisions was achieved. GKN's Volvo Aerospace acquisition will help the engineering group to benefit from global growth in airlines' aircraft orders, boosting its exposure in civil aerospace. The deal extends GKN’s manufacturing capacity in the high-value aerospace engines market. In 2013, the first full year of ownership, Volvo Aero's contribution is expected to be earnings enhancing. In aerospace, civil aircraft production is expected to continue to grow, as both Airbus and Boeing increase production. This should more than offset the effects of lower production of US military aircraft. The performance of GKN Land Systems should continue to show an improvement, benefiting from the expected ongoing strength in European and North American agricultural equipment markets partially offset by weaker European industrial markets. A progressive dividend policy is currently being pursued. Confidence in the outlook has helped underwrite a 20% hike to the half year dividend.
Negative Points: In the final quarter of 2012, Volvo Aero is expected to achieve a profit from its trading activities but have a negative impact on GKN's reported profit due to integration costs and acquisition accounting adjustments. GKN faces risks from volatility in vehicle production, continuing pricing pressure from car assemblers and warranty claims. The group has exposure to pressured military aerospace spending. Group net debt has risen from £538 miillion (as of 31 Dec 2011) to £590 million. GKN operates a number of defined benefit and defined contribution pension schemes together with retiree medical arrangements across the group. The deficit of all schemes at 30 June 2012 was £926 million, a £58 million increase over 31 December 2011. The multinational company is exposed to currency exchange rates and raw material prices.
Group sales rose by 16% to £3.46 billion or 8% when excluding acquisitions. Profit before tax increased by 19% to £266 million. Earnings per share rose by 22% to 14.4 pence per share. GKN recently agreed to buy the aerospace division from Swedish based Volvo Group for £633 million. Negative Points:
Half year results: Coming shortly after its agreement to buy Volvo's aerospace business, the results proved to be broadly in line with expectations. Sales increases and profit margin progression for each of its four Divisions was achieved, with new acquisitions, Stromag and Getrag Driveline Products, both performing well. Furthermore, with the benefit of a good first half and the group's broad exposure to global markets, management expectations for 2012 remained unchanged. As such and as a result of the strong performance and confidence in the future, GKN announced a 20% increase in the half year dividend. Management looked forward to welcoming its new acquisition, Volvo Aero, into GKN when the transaction completes in the next few months. In all, and weighing the uncertain global economic outlook against broad exposure to global markets and increased exposure to expected long term growth in the aerospace market
GKN plc is a multinational engineering company headquartered in Redditch, United Kingdom. The company was formerly known as Guest, Keen and Nettlefolds and can trace its origins back to 1759, the birth of the industrial revolution. GKN is listed on the London Stock Exchange and is a constituent of the FTSE 100 Index.