Cookson, the industrial materials group, is benefiting from the US decision to print more money, or at least issue more coins.
The company's precious metals division saw weak retail jewellery markets in the third quarter, it said today. But this was offset by more consumers cashing in gold to take advantage of the record metal price and by strong demand from the US Mint for gold coin blanks.
Cookson's shares are leading the mid-cap risers, up 44.9p to 438.5p as investors warmed to its update. The company said business continued to improve in the third quarter and into the final three months of the year, giving it confidence to forecast that full year trading profits would be at the top end of analysts' expectations. It also pointed out it would be in full compliance with its debt covenants.
Apart from precious metals, it said the electronics business continued to improve while there had also been a slight pick up in its foundry markets. It added:
Trading performance in 2010 will be dependent on the speed and strength of the recovery in the global economy and in our key end-markets of steel production, foundry castings and electronics, which remain difficult to predict with any certainty. Given the actions we have taken over the past year, we believe we are well positioned once a sustained recovery in end-markets is confirmed.
Altium Securities kept its buy recommendation, saying:
Our 2010 forecasts are predicated on a continuation of the second half 2009 run rate plus the benefit of cost reduction plans. Given that there is scope for continued improvement in end markets, for Foundry and Flow control, we believe that there is scope for upgrades in the next 12 months. At £98m trading profit for 2009, we are currently towards the top end of the range, in line with management's guidance today. As a result, no change to forecasts.
Net debt of £471m at 30 September was higher than our full year expectation of £430m. This is a reflection of the increase in working capital reflected in the recovery in trading in the second half. The group's ability to pay down debt in the short/medium term will be constrained by the need to invest in working
capital. This is a negative but the group remains within covenants and we anticipate that they will be comfortably within them next year as a result of the increase in operating profits.
Harry Philips at Evolution Securities also pointed to the higher than expected borrowings:
A good IMS from Cookson which points consensus to the top of the range and means, as expected, no breach. The surprise is the debt number which is higher than we expected, almost being a victim of its recovery success as working has been dragged back into the platform. We need to increase our numbers, hence the lift in target price [from 325p to 375p] but after much thought have kept the reduce call. It is a relative call rather than a structural call with the main factor being the balance sheet which we feel limits the company's recovery optionality in the medium term compared to stocks such as Invensys and IMI.
