Avon Rubber sinks to six-month low after soft update

Continuing soft conditions in the dairy market have hit Avon Rubber in the first quarter of the year, exacerbated by the timing of orders in the defence business.

However, new chief executive Rob Rennie, who started in December, said management remained confident in trading over the long-term and analysts made no changes to forecasts.

Moreover, strong cash generation saw net debt at 31 December 2015 fall to £10.0m from £13.2m at the end of September.

In the Protection & Defence division, the "timing of order receipt remains unpredictable" for the order fufilment of gas masks to the US Department of Defense, though the company still expects "one of these" orders to be received and fulfilled in the first half of this financial year.

In dairy, demand has been squeezed lower as low milk prices continue to depress market conditions for dairy farmers, particularly in Europe.

"This typically cyclical market dynamic has, as expected, reduced demand for our consumable products as farmers extend the life through over using product," Avon said.

On the upside, the take-up by farms of the innovative Cluster Exchange service was said to have remained at "encouraging levels" in both North America and Europe.

Last year's acquisitions were both reported to be integrating well, with October addition Argus moving its manufacturing operation to Avon's Melksham defence facility during the Christmas period, while InterPuls, acquired in August, expected to realise the long-term strategic benefits for the dairy division "in due course".

Broker WH Ireland made no changes to forecasts for PBT of £21.2m and EPS of 52.5p for the full year.

"Trading on a FY 2016E PER multiple of 19.0x and EV/EBITDA multiple of 9.2x, the shares may mark time in the near-term but we continue to view Avon as a core small cap holding, reflecting the significant growth potential across both divisions in combination with the inherent cash generative qualities of the group over the coming years."

Shares in Avon fell 13% to 869.92p by 0925 GMT, their lowest level since August last year.