a key supplier of respiratory gear and helmets to the U.S. military, reported annual revenue growth of more than 30%, after a year in which the company made significant acquisitions to focus its business solely on critical protection systems.
Shares in the British company tumbled near 8% in London trading, likely as investors took profits from the stock, which has more than doubled in value this year.
The back story. Founded in 1885 as a manufacturer of rubber tires, sports equipment, and cow-milking machine tubes, Avon Rubber’s storied history as a conglomerate includes producing 20 million gas masks during World War II as a supplier to the U.K. government.
Since securing a contract with the U.S. Department of Defense in 2000, the company has expanded into supplying militaries and emergency services with masks, respirators, and underwater rebreathers.
This year was crucial for FTSE 250-listed Avon Rubber. In January, it closed on the acquisition of manufacturer
ballistic protection business, broadening its product line to include armor, and in September it acquired Team Wendy, a leading helmet producer. In September it also divested from its milking and farm services business, leaving the company to focus solely on personal protective equipment.
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What’s new. Avon Rubber reported revenues of £168 million ($223.5 million) for the 12 months to the end of September on Wednesday, a 30.8% increase from the year prior. The company’s adjusted profits before tax, which excludes costs associated with acquisitions, rose 27% from £22.2 million in 2019 to £28.2 million in 2020.
Unadjusted profit before tax for the year, which includes the cost of the two acquisitions and the discontinued operations of the dairy business, was just £500,000 in 2020, a fraction of the £8.7 million Avon Rubber reported in 2019.
“We have consistently delivered on our strategy to invest in expanding our product portfolio to meet more of the protection needs of our customers,” said Paul McDonald, the group’s chief executive. “This has enabled us to build a broader and more visible long-term contract portfolio to position the business to deliver further growth in 2021 and beyond.”
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Looking ahead. The dip in Avon Rubber’s stock price on Wednesday comes amid the news that the U.K. has authorized a Covid-19 vaccine for emergency use, and could mark a shift in investor sentiment toward cyclical stocks as an economic recovery seems more imminent.
The 8% slide could also be a sign of profit-taking for a stock that is up 105% this year, and nearly 300% since 2015. It’s unlikely that the underwhelming unadjusted profit figure would have spurred the selloff, as the details of the acquisitions and disposal were already known to the market.