21st Jun 2016 09:57
LONDON (Alliance News) - Shares in Senior PLC were on the defensive on Tuesday, as the aerospace, military and vehicle components manufacturer warned ongoing problems in the end markets of its Flexonics division will bruise second half margins.
Shares were off 13% on Tuesday mid-morning to 196.50 pence, the worst performer in the FTSE 250 index.
Flexonics, which makes expansion joints, flexible metal and teflon hoses and cryogenic equipment for pressure and piping systems, has been hurt by weaker conditions in the truck and off-highway vehicle markets and by ongoing softness in the oil and gas sector, itself suffering from the low oil price.
Senior said activity for Flexonics in the second quarter of 2016 reflected those continuing problems in its end markets, and while the division continues to focus on cutting costs and improving efficiency, a reduction in volumes and adverse change in its sales mix - meaning it is selling relatively more lower-margin products than higher-margin ones than it did previously - will mean divisional margins for the first half of 2016 will be lower than expected.
Senior anticipates the first-half margin for Flexonics will sink to around 8-9%, a big decline on the 14.3% margin it reported for 2015.
In addition, Senior said the focus at Flexonics will be on cutting costs, which should benefit profit in the second half, but given ongoing softness in the truck and oil and gas markets, revenue at Flexonics in the second half is likely to be lower than the first.
Senior's Aerospace arm, meanwhile, has continued to trade in line with expectations, the company said, with activity increasing thanks to additional components on new aircraft. Margins for the first half are lower year-on-year due to the ramp-up of new aerospace programmes, but the group anticipates better profitability in the second half.
N+1 Singer analyst Jon Lienard said the further deterioration seen in the Flexonics business was "disappointing", given significant downgrades to expectations already factored in earlier in the year.
Senior had said in its trading update in April that Flexonics continued to suffer from tough end markets and said the outlook for the business was "uncertain".
N+1's Lienard said the problems at Flexonics are "overshadowing the positives elsewhere", with Senior well-positioned to benefit from increasing components sales to major new aircraft programmes over the next five-to-10 years.
Sentiment on Senior shares, Lienard said, will only be rebuilt once some stability to its forecasts returns.
By Sam Unsted; [email protected]; @SamUAtAlliance
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