Should you pile into Carr's Group, up 12% today?
With the stock up 12% today as I write, I think it's fair to say the market likes the agriculture and engineering company Carr's Group (LSE: CARR) interim results report. In the first half of the trading year to 3 March, revenue increased just over by 13% compared to the equivalent period the year before, and adjusted earnings per share shot up almost 30%.
The directors pushed up the interim dividend by a little over 13% and said that trading in the second half started well. They think the full year will see an outcome "slightly ahead of previous expectations," and that could be the key phrase that is driving today's positive share-price action.
Recovery and growth in both divisions
Last year, Carr's earned around 93% of its operating profit from its agricultural operations and the rest from the engineering business. The agriculture division makes feed blocks for livestock, retails farm machinery and fuel, and operates around 43 rural stores in northern England and southern Scotland providing a "one-stop shop for the farming community." The animal feed enterprise serves more than 50 countries via "a vast distributor network across the UK, Europe, Middle East and North America," run by wholly owned and joint ventures in Britain, Germany and the USA.
Meanwhile, the engineering division makes equipment and provides technical engineering services for the nuclear, petrochemical, oil & gas, pharmaceutical, process and renewable energy industries. Although the two divisions seem unrelated, both seem to be enjoying a purple patch of trading. There's an ongoing recovery under way from the firm's US-based agriculture business, and Chief executive Tim Davies said, the strong results also reflect "the excellent recovery made in our Engineering division and builds upon the strategic progress made during the last year."
That strategic progress includes four 2017 acquisitions. In the engineering division NuVision Engineering, a US-based technology and applications engineering company focused on commercial nuclear and power plant facilities, government waste remediation facilities and waste clean-up. In the agriculture division, certain assets from Mortimer Feeds, an agricultural merchant based in Cheshire, Horse and Pet Warehouse, a retailer of animal products for the pet, equine and smallholding market based in Ayr, Scotland, and Pearson Farm Supplies, an agricultural retail business with locations in Skipton, Gisburn and Anglesey.
It looks like the valuation is rushing to keep up with events. Today's share price around 154p throws up a forward price-to-earnings ratio of just over 12 for the trading year to August 2019 and the forward dividend yield is around 2.9%. City analysts following the firm expect earnings to increase 34% in the current year and 7% to August 2019. Those forward earnings should cover the dividend payment almost three times. Even after today's sharp move up, the valuation looks undemanding.
The dividend is up around 33% over the past five years and it wouldn't surprise me to see more total returns for shareholders in the years to come, perhaps partly driven by an upwards revision in the valuation. After a long period of consolidation on the share price chart, perhaps the firm's good trading will catalyse another leg up.
Kevin Godbold has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.