Dowlais’ full-year underlying revenue rose 6.3% to £5.5bn, ignoring the impact of exchange rates. This was largely driven by volume growth in the Automotive division.
Underlying operating profit grew 10% to £355mn, largely because of the higher revenue. Price increases and cost cuts also helped improve profitability.
Underlying free cash flow came in at £93mn. Net debt was £847mn at year-end.
Dowlais expects 2024’s revenue to be in line with the prior year, weighted toward the second half. Operating profit margins and free cash flows are also set to rise.
A final dividend of 2.8p per share has been announced, taking the full-year total to 4.2p. A new share buyback programme for up to £50mn is set to start in April and complete within 12 months.
The shares were broadly flat following the announcement.
Our view
Dowlais’ full-year numbers failed to impress markets on the day, despite posting double-digit operating profit growth. The weak outlook for volumes and revenue in 2024 is likely what’s caused some caution among investors.
Diving into the business, its largest division, GKN Automotive, remains the driving force behind the group's improved performance. It produces drivetrain components, which are effectively a group of parts that connect a car's engine to the wheels and various other parts of the car to help drive it into motion.
The group's got market-leading positions on many of these components. It serves around 90% of global car manufacturers, with the group's parts finding their way onto around half of these manufacturer's cars. And because of the wide variety of car manufacturers this division works with, revenues are spread across multiple geographies which helps to diversify some risk if certain markets slow down for any reason.
With the switch to electric vehicles (EVs) looking inevitable, we think Dowlais could be a major beneficiary of the transition due to its market-leading positions in the EV space too. 2023’s automotive orders climbed to record levels worth more than £6bn over the contract lifetimes, with a mammoth 74% of this being EV-related.
The Powder Metallurgy business accounts for around a fifth of group revenue. It specialises in turning powdered metals into high-precision components. This should complement the EV transition but performance remains disappointing, with profitability still being hamstrung by inflated costs and operational challenges at some production facilities.
There are other challenges to be aware of too. With so much economic uncertainty hanging heavy over the market, not every consumer's confident enough to sign the dotted line for a new car right now. And disruptions to global supply chains have the potential to push up costs.
Elsewhere, the group's made big strides in restructuring the business in recent years, and cash flows are now in positive territory. Continued improvements in cash flows will likely put potential merger and acquisition (M&A) opportunities back on the table. That's a key part of the group's growth strategy, so don't be surprised to see some activity on this front in the coming years.
Ultimately, Dowlais has a strong market position, with the electric transition likely to be a big tailwind for the group. But in the near term, sentiment’s likely to be steered by the outlook for global car demand and volumes. That caution looks to be built into the valuation, which is towards the lower end of its peer group on a forward price-to-earnings basis.
Dowlais key facts
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