Rotork surges as Q1 revenue jumps 10%

Flow control manufacturer Rotork surged on Monday after it reported a jump in first-quarter revenue and said it now expects full-year revenue to show mid to high single-digit growth over the previous year.

In a trading update for the period from 1 January to 1 April 2018, Rotork said revenue rose 10.2%, with order intake up 20.9%, or 27% at organic constant currency, thanks to more favourable market trends and the receipt of several significant orders.

Meanwhile, the order book stood at £228.3m at 1 April, up 18.6% from the end of December 2017 and 12.3% higher than the first quarter of last year.

On an organic constant currency basis, order intake rose across all divisions, albeit against much softer comparatives for Controls and Fluid Systems as the improvement in order intake in these divisions in 2017 started in the second quarter.

Rotork said customers' spend on maintenance and upgrades appears to be increasing to compensate for the lack of investment over the previous few years and there was an improvement in investment in larger projects towards the end of the quarter.

The company said the end market environment continues to improve. In oil and gas, there was growth in upstream and Rotork said the improvement it we saw in downstream in the last quarter of 2017 continued.

Rotork said it saw steady progress across the industrial process market while water and power remained flat. Midstream remained challenging, however, and this is not expected to improve in the near term.

Geographically, Asia, Europe and parts of North America grew, but the Middle East and Latin America were flat.

"We are encouraged by the stronger than anticipated order intake in the first quarter. We now expect revenues for the full year to show mid to high single digit growth over last year on a reported basis, despite a currency headwind of circa 5%, based on current rates."

RBC Capital Markets said first-quarter orders and revenues suggest that the long-awaited recovery in Rotork’s oil & gas end markets is coming through.

"Rotork would perhaps be one of our favoured ways to play a recovery in late cycle oil & gas markets. However, our enthusiasm is tempered by the valuation (26x 2018 earnings) and the unknowns from the group’s strategic plan. It aims to return the group’s organic growth and operating margins to historical levels, with a series of actions over the next three to five years.

"We do not yet have clear sight on the level of associated exceptional costs, although remain mindful that that recurring exceptionals lowers the quality of earnings - particularly for stock trading on more than 25x price to earnings. We expect to hear more on this from the recently appointed CEO Kevin Hostetler with the first-half results."

At 0900 BST, the shares were up 12% to 334.80p.