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Castings plc – trading update, new machining business management face turnaround challenge

By Steve Moore | Friday 12 January 2018

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.

Previously writing on foundry and machining group Castings (CGS) in November, I concluded I await some evidence of Machining turnaround before considering following suit with a purchase. On the watchlist. There’s now a Trading Update

This opens with that “the performance of the foundry businesses continue to be in line with market expectations supported by steady demand from our commercial vehicle customer base”. Good, good - but what about the troubled Machining business?

New management is noted and “certain projects have been identified that are not considered suitable for the group. The total cost of exiting these projects is £1.3m”. There’s then though more - with that;

“The continued disruption in supply has resulted in higher than previously anticipated costs, particularly in relation to excessive transport, to ensure customer schedules are met. The total financial impact in 2017/18 of the reorganisation of the machining business is expected to be a non-recurring cost of £3.4m… After taking into account these costs, the directors expect the group profit for the year to be in the range of £12.5m - £13.5m, with positive cash flows being generated.”

No further accounts information is provided – the half-year results to 30th September having shown cash & other current interest-bearing deposits of £24.5 million and net (all-tangible) assets of £124.3 million after a pre-tax profit of £5.9 million (prior year H1: £7.1 million, full-year £15.9 million).

With the shares currently at 450p, capitalising the company at just under £200 million, I currently continue to monitor for new management Machining turnaround. This remains on the watchlist.

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