Management actions yield cautious optimism

Trading remains difficult, and cost reduction measures continue to be implemented. Chamberlin is still on track strategically, and the group continues to develop its product offering most favourably. The group has been financially de-risked, and the shares remain attractively valued against the peer group on most methodologies, in our view.

• Trading outlook: Trading in the second half will reflect new customer orders, as well as initiatives and the actions taken to restructure the cost base. The combination of higher revenues and a significantly lower cost base is expected to give rise to second- half operating margins of ca.3%.
• Business developments most positive: Management’s ongoing negotiations with customers include higher volumes from existing automotive customers, including increased utilisation of machining capacity, a new contract for non-automotive light castings and general selling price increases, on average, of ca.5%.
• Financial forecasts: We have further adjusted our 2019/20 forecasts to reflect the continued challenging operating environment and the company’s view that results will move from the positive side of breakeven at the interim stage to a small loss for the year.
• Risks: Potential risks include developments with the automotive industry, Brexit uncertainties, foreign currency and raw material price fluctuations. From a financial standpoint, the group has been significantly de-risked, with the Exidor disposal proceeds used to reduce the pension scheme deficit and pay down debt.
• Investment summary: The shares offer the opportunity to invest in a cyclical stock with good operational leverage and a valuation that we consider attractive compared with the peer group, but they are likely to tread water until significantly brighter prospects become more evident.