The demise of King Coal has not been kind to Fenner, the East Yorkshire maker of conveyor belts.
The fuel that powered the Industrial Revolution — and helped Fenner grow from its humble beginnings in Hull in 1861 — is going out of fashion fast. Governments from Westminster to Beijing are attempting to clean up their power generation with curbs on coal.
The commodity price crash of 2014 left the engineer on the ropes, as plunging demand for minerals and oil and gas slashed demand for its belts, spare parts and hydraulic seals. Fenner hit its lowest ebb in early 2016, after a string of profit warnings that left its shares trading at just 98.5p and forced deep cost-cutting.
Investors who had the guts to plunge in then are sitting pretty. Its shares have more than tripled in value, and now stand at 335p, valuing it at £650m. Swiss activist investor and 6% shareholder Teleios has been a beneficiary, and now has a seat on its board.
Donald Trump’s love affair with coal has helped propel its shares north, as has the recovery in the oil price and America’s growing rig count. Saudi Arabia’s recent political purge has given the oil price another shot of adrenaline, which should feed through to Fenner’s order books.
This week’s full-year results should show more momentum, as well as another hike to its dividend. Cost cuts have created a business that ought to generate significant cash when orders start to flow. Analysts are factoring in a total payout of 4.2p per share, up from 3p last year, but if free cashflow improves further and debt continues to fall, there could be more scope for dividend growth.
Fenner is not just about conveyor belts. Its widgets division covers a broad spread of industries. They range from the seals used in liquid natural gas production, to parts used in keyhole surgery. While sales there have been falling, profits and margins are in the ascendency. Fenner is on the hunt for acquisitions, something unthinkable just a few years ago.
The company has been a perennial on the stock market since its float in 1937. Its 62-year-old chief executive Mark Abrahams is not quite of the same vintage, but has served an impressive stint on its board, since joining in 1990 as finance director. His plans to step aside have been complicated by the departure of his replacement, Nick Hobson, with illness.
Fenner needs clarity on a replacement for its veteran boss, but its prospects are bright. Buy.
