Chamberlin plc (LON:CMH) recent trading update revealed that trading is stalling in these challenging times. The company, however, is taking appropriate strategic actions. The group has been financially de-risked, and the shares remain appropriately valued against the peer group on most methodologies, in our view.
- Trading update: Trading for the current year to 31 March 2020 is expected to be in line with market expectations; however, given the current ongoing uncertainty of future customer demand, management expects that revenue will be substantially reduced in the early months of 2020/21.
- 2020/21 forecasts: As a consequence, forecasts are unpredictable and somewhat inappropriate. The company is benefiting from recent restructuring initiatives with a reduced operating cost base. Management is focused on cash preservation and will take advantage of UK government measures to support businesses.
- Business developments: The Walsall foundry and Machine Shop will close for a minimum of three weeks in April, reflecting the COVID-19 impact on the global automotive industry. The Scunthorpe foundry and Petrel will remain operational and are currently trading in line with management expectations.
- 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 shares offer the opportunity to invest in a cyclical stock with a valuation that we consider fair compared with the peer group. Chamberlin are likely to tread water, however, until significantly brighter prospects become more evident.
