Will Avon Rubber plc surge higher after today’s update?

Does Avon Rubber plc (LON:AVON) (AVON.L) offer upside potential?

Avon Rubber plc
Avon Rubber plc

Avon Rubber plc (LON:AVON) (AVON.L) has released a trading update today ahead of its year end on 30 September 2018. The company seems to be performing well in my view, with the momentum from the first half of the year continuing into the latter part of the year.

The company’s performance in the second half of the year has continued to be strong, and it expects adjusted profit for the full year to be in line with previous guidance.

Order intake in its Avon Protection division has continued to be upbeat, with revenue growth for the full year due to be 7%. It has an active pipeline of incremental contract opportunities across the Military business, with Law Enforcement continuing to deliver growth across the portfolio in all geographies.

Avon Rubber has also reported that the global dairy market environment has been positive. It has seen improved trading conditions in North America. Interface performance has recovered in the second half of the year, while PCI and Farm Services have continued to perform in line with the trends from the first half of the year.

The company reports that it has a strong order book which provides it with good visibility for the next financial year. It believes it is well-placed to deliver further growth through taking advantage of new product opportunities across its divisions.

In my view, the performance of Avon Rubber has continued to be impressive. The company, though, seems to lack a large margin of safety, with its P/E being around 21 at the moment. Given that it is not forecast to post positive EPS growth in each of the next two financial years, I believe there could be better investment opportunities for me elsewhere in the FTSE All-Share.

Sure, the company’s prospects from a business perspective may improve. But with a relatively high valuation, I believe that its risk to reward ratio may not be particularly appealing.

About Robert Stephens 5138 Articles
Robert Stephens is a CFA Charterholder and an Equity Analyst by trade. He is a passionate private investor who has been buying and selling shares for many years, owning a wide range of UK shares in the process. He has written for Citywire and The Motley Fool US and now runs his own business. To contact Robert, please email [email protected] or use one of the other contact methods available on the 'Contact Us' page