Shares in Carr’s Group soared 13% after it trumpeted trading “significantly ahead” in both its agriculture and engineering divisions, noting “positive sentiment” among UK farmers and recovering US feed block sales.
Shares in the UK-based group touched 140p in early deals in London, before easing back to 138p, a gain of 11.3% on the day.
The jump followed the group’s announcement that trading for the first four months of its current financial year, which ends in August, was “significantly ahead of the prior year in both agriculture and engineering”.
Tim Davies, the Carr’s chief executive, said he was “pleased with how the 2018 financial year has commenced”, adding that “we are seeing the continued recovery across both divisions”.
‘Improved farm incomes’
In agriculture, the company reported a weather setback to UK fuel sales, with wet conditions “affecting agricultural operations” in prohibiting fieldwork.
However, Carr’s flagged a boost in other market sectors from “improved farm incomes” were which “continuing to reinforce farmer confidence”.
Latest official data, for 2016-17, showed UK farm incomes rising for all nine sectors covered bar poultry, led by 167% growth in the pig sector, while cereals producers saw 22% growth, with the continued softness in sterling supporting agricultural commodity prices.
“Machinery sales remain strong and continue to reflect positive farmer sentiment on the prospects for UK agriculture,” Carr’s said, noting a “strong start” to its financial year too for its retail business, with feed volumes rising year on year.
Official data show UK feed production growing by 4.5% to 3.42m tonnes for the August-to-October period, led by a 10.1% surge to 1.05m tonnes in cattle feed output.
US cattle price boost
In the US, Carr’s reported that feed block sales volumes “continue to recover… as cattle prices for producers continue to improve”.
Indeed, futures in feeder cattle – ie those ready to be fattened – proved one of the stronger contracts among agricultural commodities in 2017, rising by 11.9%, helped by demand from feedlots, whose margins were supported by weak corn prices and resilient beef demand.
Futures in live cattle – animals finished for slaughter – appreciated by 2.1% last year.
US Department of Agriculture analysis show the typical high Plains feedlot resuming a longstanding run of profits in November, after running at a loss in September and October.
‘Much stronger year’
The statement from Carr’s which also reported “improved levels of activity” at its engineering business, which serves sectors from energy to pharmaceuticals, prompted Edison to lift by nearly £6m, to £370.1m, its forecast for the group’s revenues this financial year.
“Importantly, US feed block volumes continued to recover as cattle prices for producers improved,” said Edison analyst Anne Margaret Crow, estimating at 167p the fair value for Carr’s shares.
“Going forward, this favourable trend will be augmented by the availability of low moisture feed blocks from [Carr’s] newly-commissioned plant in Tennessee, which opens up the market in the eastern states of the US.”
Broker Shore Capital restated a “buy” rating on Carr’s shares, saying that while the last financial year had been a “tough” one for the operator, “we do now expect a much stronger year in 2018 and [Tuesday’s] statement supports this view”.
At VSA Capital, Ed Hugo said that “although we are only mid-way through the first half of the financial year, it appears the Carr’s remains on track for a significantly improved year-on-year performance”.
Mr Hugo underlined the fortunes of the dairy sector, a big feed buyer, saying that “despite our fears for a potential near-term decrease in milk pricing, prices have remained fairly stable over the last few months,” with official data showing the average farmgate milk price in November at 32p per litre.
“Although it is worth noting that some processors have now started to reduce milk prices paid to farmers, which will see this average drop in subsequent months, the price drop is expected to be more gradual than we saw through 2014 to mid-2016.”
(Source – https://www.agrimoney.com/news/improving-uk-farm-incomes-us-cattle-prices-boost-carrs-49087)