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Hardman & Co

Chamberlin: Trading update most encouraging

Chamberlin plc (LON:CMH) recent trading update was most encouraging, considering these challenging times. The company continues to take appropriate operational strategic actions. The group has been financially de-risked, but financial forecasts continue to be inappropriate, given low visibility on business activity.

  • Trading update: Unaudited results for the year to 31 March 2020 were in line with expectations, with sales expected to be £26.1m and a loss before tax of £2.3m. Net debt at 31/03/20 is expected to be £4.6m. Trading in the current year has started well, with sales for the six months to 30/09/20 at £11.0m (down just 15%) and with a loss before tax of £0.6m (£1.8m).
  • 2020/21 forecasts, however, remain unpredictable and inappropriate, given the uncertainty across global markets and industries, especially the automotive industry. The company is benefiting from restructuring initiatives, with a reduced operating cost base. Management remains focused on cash preservation
  • Business developments: The Walsall foundry reopened on 04/05/20, and production levels are now broadly in line with activity seen prior to the impact of COVID-19. The Scunthorpe foundry has remained operational, operating at full production levels. Petrel is still operating at around 60% of normal sales volumes.
  • Risks: Potential risks include developments related to the COVID-19 pandemic, the global automotive industry and Brexit uncertainties. From a financial standpoint, the group has been significantly de-risked, with the recent Exidor disposal proceeds used to reduce the pension scheme deficit and pay down debt.
  • Investment summary: The Chamberlin shares offer the opportunity to invest in a highly cyclical stock. They are, though, likely to tread water at current levels, until significantly brighter prospects become more evident.

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