Berenberg slightly lowers target price on Avon Protection

Berenberg said Avon was only suitable for a "brave investor" willing to look through various near-term challenges to the prospect of potentially higher mid-term demand.

The German bank said the first half was "a tough period for the group", with sales flat year-on-year and roughly 3% below the post-close update, adjusted underlying earnings falling by 48%, adjusted earnings per share dropping 81%, net debt rising to $56.6m to 2.6x EBITDA, Avon's buyback being halted, and both research and development and capex investment being "reduced meaningfully".

However, Berenberg noted that Avon's closing order book of $111.0m did provide "some visibility into H2", and added that margins should also be supported by the delivery of $3.0m-4.0m in cost savings in the period, with an additional $6.0m of cost savings also planned for delivery in 2023.

"We now assume a 5.5% EBIT margin for FY 2022 (previously 6.5%) given the lower margin mix of sales anticipated in H2 alongside continued inflationary pressures. For FY 2023 and FY 2024, we make modest tweaks to our estimates," said Berenberg.

"Certainly, until there is greater earnings stability and reduced leverage, we will struggle to be more constructive. We cut our EPS estimates by 19%/3%/3% for FY 2022/2023/2024 respectively and remain holders."