Trading stalled in these unprecedented times

Chamberlin’s recent trading update revealed that trading is stalling in these challenging times. The company, however, is taking appropriate strategic actions. The group has been financially de-risked, and the shares remain appropriately valued against the peer group on most methodologies, in our view.

• Trading update: Trading for the current year to 31 March 2020 is expected to be in line with market expectations; however, given the current ongoing uncertainty of future customer demand, management expects that revenue will be substantially reduced in the early months of 2020/21.
• 2020/21 forecasts: As a consequence, forecasts are unpredictable and somewhat inappropriate. The company is benefiting from recent restructuring initiatives with a reduced operating cost base. Management is focused on cash preservation and will take advantage of UK government measures to support businesses.
• Business developments: The Walsall foundry and Machine Shop will close for a minimum of three weeks in April, reflecting the COVID-19 impact on the global automotive industry. The Scunthorpe foundry and Petrel will remain operational and are currently trading in line with management expectations.
• Risks: Potential risks include developments related to the COVID-19 pandemic, the global automotive industry and Brexit uncertainties. From a financial standpoint, the group has been significantly de-risked, with the recent 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 a valuation that we consider fair compared with the peer group. They are likely to tread water, however, until significantly brighter prospects become more evident.