Shares Magazine - August 22, 2019

BIG NEWS

10 | SHARES | 22 August 2019

I

ŶǀĞƐƚŽƌƐĂƌĞĞdžĐŝƚĞĚĂďŽƵƚƚŚĞƉŽƚĞŶƟĂůŽĨ

ŝŶĐƌĞĂƐĞĚĞĂƌŶŝŶŐƐĂŶĚƐƵďƐƚĂŶƟĂůĐŽƐƚƐ

ƐĂǀŝŶŐƐĂŌĞƌǀŽŶZƵďďĞƌ;sKEͿunveiled a

ůŽŶŐͲŵŽŽƚĞĚh^ĂĐƋƵŝƐŝƟŽŶ͘

KŶϳƵŐƵƐƚƚŚĞάρϯρŵĚĞĨĞŶĐĞƚĞĐŚŶŽůŽŐLJ

ĐŽŵƉĂŶLJĂŶŶŽƵŶĐĞĚƉůĂŶƐƚŽĂĐƋƵŝƌĞƚŚĞďĂůůŝƐƟĐ

ƉƌŽƚĞĐƟŽŶďƵƐŝŶĞƐƐĨƌŽŵh^ƐƉĞĐŝĂůŝƐƚŵĂƚĞƌŝĂůƐ

ĐŽŶŐůŽŵĞƌĂƚĞϯD͕ŝŶĐůƵĚŝŶŐƚŚĞƌŝŐŚƚƐƚŽƚŚĞ

Ceradyne brand, which makes body armour and

helmets for the US military.

dŚĞĂĐƋƵŝƐŝƟŽŶǁŝůůĐŽƐƚΨεϭŵǁŝƚŚƵƉƚŽĂŶ

extra $25m payable depending on the outcome of

various legacy product contract tenders. The deal

ǁŝůůďĞĨƵŶĚĞĚŽƵƚŽĨĞdžŝƐƟŶŐĐĂƐŚĂŶĚďŽƌƌŽǁŝŶŐ

ĨĂĐŝůŝƟĞƐ͘

This is a deal that some analysts have been

ǁĂƚĐŚŝŶŐĂŶĚǁĂŝƟŶŐĨŽƌϭΘŵŽŶƚŚƐƚŽŚĂƉƉĞŶ͕

but it is only during the past week that the full

ƐĐŽƉĞĨŽƌĮŶĂŶĐŝĂůďĞŶĞĮƚƐƚŽǀŽŶZƵďďĞƌŚĂǀĞ

appeared in updated forecasts.

͚dŚŝƐŝƐĂƋƵĂůŝƚLJĂĐƋƵŝƐŝƟŽŶƚŚĂƚƐƵƌƉĂƐƐĞƐŽƵƌ

ĞdžƉĞĐƚĂƟŽŶƐďŽƚŚƐƚƌĂƚĞŐŝĐĂůůLJĂŶĚĮŶĂŶĐŝĂůůLJ͕ĂŶĚ

ĚƌŝǀĞƐŽƵƌϮϬйƚŽϯκйĞĂƌŶŝŶŐƐƵƉŐƌĂĚĞƐ͕͛ƐĂŝĚ

Berenberg’s capital goods and engineering team.

Berenberg’s analysis runs along twin lines.

They see the deal widening Avon’s product range,

bolstering average content per soldier, deepening

ŝƚƐĂůƌĞĂĚLJƐƚƌŽŶŐƌĞůĂƟŽŶƐŚŝƉǁŝƚŚƚŚĞh^

Body armour deal sparks

value creation excitement

for Avon Rubber

Defence technology firm’s deal will see it

supply US military with life-saving protection kit

ĞƉĂƌƚŵĞŶƚŽĨĞĨĞŶĐĞ

and strengthening its

own research and

development capability.

But stripping out duplicated costs form a second

line of value for Avon Rubber and its’ shareholders

ĚŽǁŶƚŚĞůŝŶĞ͘ƐƟŵĂƚĞƐƐƵŐŐĞƐƚƵƉƚŽΨρŵĂLJĞĂƌ

of savings can be delivered over the next couple

ŽĨLJĞĂƌƐĨƌŽŵĂΨϭϬŵƵƉĨƌŽŶƚŝŶǀĞƐƚŵĞŶƚ͕ĐƌĞĂƟŶŐ

ǀĂůƵĞĨŽƌŝŶǀĞƐƚŽƌƐďĞLJŽŶĚϮϬϮϬ͘

ĞLJŽŶĚƚŚĞƐĞĐĂůĐƵůĂƟŽŶƐƚŚĞƌĞŝƐĂůƐŽƚŚŽƵŐŚƚ

to be considerable scope to cross-sell Ceradyne

products to Avon’s customers outside of the US,

ǁŚĞƌĞĞƌĂĚLJŶĞĐƵƌƌĞŶƚůLJĞĂƌŶƐŵŽƌĞƚŚĂŶεϬй

of its revenues.

The market was quick to react to the implied

ďĞŶĞĮƚƐƚŽƚŚĞǀŽŶŝŶǀĞƐƚŵĞŶƚĐĂƐĞ͕ǁŝƚŚƚŚĞ

ĐŽŵƉĂŶLJ͛ƐƐŚĂƌĞƉƌŝĐĞũƵŵƉŝŶŐϭεйĨƌŽŵάϭϯ͘Ϯκ

ƚŽάϭρ͘ϳϮŽŶƚŚĞĚĂLJƚŚĂƚƚŚĞĂĐƋƵŝƐŝƟŽŶǁĂƐ

announced. In the days since then the stock has

ĐŽŶƟŶƵĞĚƚŽƌĂůůLJƐƚƌŽŶŐůLJ͕ŚŝƫŶŐĂƌĞĐŽƌĚάϭϳ͘Ϯς

ŽŶϮϬƵŐƵƐƚ͘

dŚŝƐŝŵƉůŝĞƐĂϯϭĞĐĞŵďĞƌϮϬϮϬƉƌŝĐĞƚŽ

ĞĂƌŶŝŶŐƐŵƵůƟƉůĞŽĨϭΘ͘ϭ͕ĨĂůůŝŶŐƚŽϭρ͘ρĨŽƌƚŚĞ

ϮϬϮϭĐĂůĞŶĚĂƌLJĞĂƌ͘

ĞƌĞŶďĞƌŐďĞůŝĞǀĞƐƚŚĂƚĂĐƋƵŝƐŝƟŽŶƐĂƌĞůŝŬĞůLJƚŽ

ƌĞŵĂŝŶĂƐŝŐŶŝĮĐĂŶƚƉĂƌƚŽĨǀŽŶZƵďďĞƌ͛ƐƐƚƌĂƚĞŐŝĐ

roadmap in the near-term.

,KtsKEZhZ͛^ZE/E'^

&KZ^d^,s,E'

ϮϬϭε ϮϬϮϬ ϮϬϮϭ

Was ϳϳ͘ϯƉ ϳε͘εƉ 82.9p

Is now ϳϳ͘κƉ 95.5p ϭϭϭ͘κƉ

^ŽƵƌĐĞ͗ĞƌĞŶďĞƌŐĞĂƌŶŝŶŐƐƉĞƌƐŚĂƌĞĞƐƟŵĂƚĞƐ 2018 2019

1100

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1800

AVON RUBBER