How does Castings PLC make money?
Castings PLC, a renowned player in the industrial manufacturing sector, has developed a successful business model that generates revenue through a combination of iron casting production, value-added services, and a diverse customer base.
The primary source of revenue for Castings PLC stems from its core business of iron casting. The company specializes in producing various types of iron castings, including ductile iron, spheroidal graphite iron, austempered ductile iron, SiMo, and Ni-resist castings. These castings are essential components in a wide range of industries, including automotive, construction, and engineering. Castings PLC leverages its expertise in iron casting to meet the demands of its customers, providing them with high-quality components that are crucial for their manufacturing processes.
In addition to iron casting, Castings PLC offers a spectrum of value-added services. These services include heat treatment, automotive standard e-coating and powder coating, galvanizing, plating, gas-based surface treatment, and plastic and metal spray coating. By offering these services, the company not only enhances the quality and functionality of its products but also taps into additional revenue streams. This diversification of services allows Castings PLC to cater to a broader customer base, increasing its market reach and overall revenue potential.
Furthermore, Castings PLC's global presence contributes significantly to its revenue generation. The company serves customers not only in its home market of the United Kingdom but also across Europe, North and South America, and internationally. This geographical diversification ensures a consistent flow of orders and revenue streams, mitigating the risks associated with a regional economic downturn.
What are Castings recent results?
Castings released their
annual statement
back in June, with some excellent results. They announced that their annual profit and revenue had both jumped in its financial year, with an increased turnover and strong order books for heavy trucks.
The company’s pretax profit for the financial year ended March 31 was £16.7 million, up 38% from £12.1 million the previous year. Castings said this was due to a turnover of £201 million, up 35% from £149 million the previous year. Operating profit was £16.4 million, up 36% from £12.0 million.
Revenue jumped to £201.1 million from £148.6 million the previous year. Castings noted that the year saw increased demand for its commercial vehicle customers, which comprise 75% of the company’s revenue, with the company experiencing a strong order book for heavy trucks.
They declared a final dividend of 13.5 pence, up 7.1% from 12.6p the previous year. The total dividend was 17.4p for the year, up 7.4% from 16.2p last year, as well as a supplementary divided of 15p per share.
‘Our customers continue to increase schedules with demand for heavy trucks in particular remaining very strong,’ said Chair A. N. Jones.
‘In addition, demand in other growth sectors such as USA, wind energy, trailer braking and coupling systems in innovative agricultural products continue to grow.’
So what makes Castings undervauled?
Castings share price is now back below where it was prior to their excellent trading update in June. After some digging, there is no overt reason for this (no negative trading news, scandal in the media etc.) However, the price of iron has fallen as a result of issues in China, which I believe is the cause of the double digit fall in share price.
Iron prices have fallen due to concerns over China's economic health and steel mill profit margins. China's dominant role as a buyer of iron ore makes its steel demand a crucial factor in pricing.
Long-term uncertainty stems from China's plans to establish a central group to control iron ore imports, potentially reshaping the market. However, the concentrated nature of both supply and demand, primarily between China and major producers like Australia and Brazil, complicates this move and may lead to a standoff.
Iron ore prices dropping is bad news for Castings, but mineral prices are difficult to predict, and tend to rise and fall over time. This seems like a good opportunity to buy in to an excellent, profitable company while the share price is discounted.
Conclusion
Castings PLC derives its revenue from iron casting production and value-added services, serving a diverse global customer base. Recent financial results showcased substantial growth, with increased profit and revenue, primarily driven by strong demand in the commercial vehicle sector and solid orders for heavy trucks. However, a decline in the share price, possibly due to falling iron prices linked to concerns over China's economy, has presented an investment opportunity. Despite the iron market's uncertainty, Castings PLC's established success and diversified revenue streams make it an attractive prospect for investors seeking long-term value.
Conclusion
