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Castings – disappointing half-year results, but turnaround opportunity?

By Steve Moore | Friday 10 November 2017

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from ShareProphets). I have no business relationship with any company whose stock is mentioned in this article.

I previously cautioned on shares in foundry and machining group Castings (CGS) in the midst of they sliding below 450p last month. They are presently sliding further, at around 430p, on the back of results for the company’s half-year ended 30th September 2017…

These show a pre-tax profit of £5.9 million on revenue of £61.7 million, generating earnings per share of 10.98p, a decline from 12.98p in the corresponding 2016 period. This was with a swing from profit to loss of the Machining business – the results noting “significant issues, including production problems”.

There is now management change there and a “decision has been taken to exit certain non-core projects”. However, it is stated “the changes being made at the machining operation are not expected to have any meaningful impact on profitability during the remainder of the year. However, from the start of 2018/19 we anticipate the machining operation to return to an acceptable level of profitability”.

There is balance sheet support – cash & other current interest-bearing deposits of £24.5 million and net (all-tangible) assets of £124.3 million, with a 3.38p per share (£1.5 million) interim dividend maintained (prior year total dividend per share: 13.97p). At a 430p share price, the market cap is £187.6 million.

I also note director share buying – Chairman Brian Cooke and a related party buying a total of £21,490 of shares. However, I await some evidence of Machining turnaround before considering following suit with a purchase. On the watchlist.

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