Chamberlin: Trading update ‒ main businesses performing solidly

Chamberlin plc (LON:CMH) recent trading update (23 November 2020) indicates that the group’s main businesses are performing as previously indicated, with the company continuing to take appropriate operational strategic actions. The group has been financially de-risked but financial forecasts continue to be inappropriate given low visibility on business activity.

  • Trading update: About 85% of the group’s business, the Walsall and Scunthorpe foundries and Petrel are trading much as indicated at end-September 2020. The Machine Shop (ca.15% of group business) is experiencing volatile demand, though, due to current challenging trading conditions.
  • Financials: Group trading in the current year has started well with sales for the six months to 30/09/20 at £11.0m (down 15%) and a loss before tax of £0.6m (£1.8m). 2020/21 forecasts remain inappropriate given the uncertainty across global markets and industries, especially the automotive industry. The company continues to benefit from restructuring initiatives, though, with a reduced operating cost base.
  • Machine Shop developments: The business has been experiencing volatile demand due to Brexit, COVID-19 and customer safety stock building. The customer of the largest contract (ca.75% of output) has informed Chamberlin that the business has now been awarded to another supplier. Chamberlin will be pursuing a claim relating to the lost business, taking mitigating actions to reduce costs, as well as seeking additional manufacturing opportunities with existing Tier 1 customers and prospective new customers.
  • Risks: Potential risks include developments related to the COVID-19 pandemic, the global automotive industry and Brexit uncertainties. From a financial standpoint, the group has been significantly de-risked, with disposal proceeds used to reduce the pension scheme deficit and pay down debt.
  • Investment summary: The Chamberlin shares offer the opportunity to invest in a highly cyclical stock. They are likely to tread water at current levels, however, until significantly brighter prospects become more evident.

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