22nd October 2015
As GKN updates the market, Helal Miah, investment research analyst at The Share Centre, explains what it means for investors…
On Thursday GKN reported a third quarter trading update which was very much in-line with expectations, seeing 2% growth in organic sales.
Year to date sales also grew by 2% with a beneficial currency translation of £29m however, investors should be aware that margins fell due to previously announced restructuring costs.
The Aerospace division saw good commercial sales, helped by the ramp-up of new aircraft, which offset declines in the A330 production and falling military spending.
Furthermore, the group’s Driveline division, which supplies parts to the automotive industry, had organic growth of 4% which has been helped by a strong European market.
As expected, the slowing down of China is beginning to impact the group as consumers switch cheaper domestic brands.
The outlook for the final quarter is not great due to reduced military spending, weak agricultural markets and a slowing Chinese economy.
However, investors should acknowledge that the aerospace division remains robust and better conditions in Europe are helping.
We believe stimulus by central banks should continue to help automotive sales and both the car industry and aerospace industry should benefit from lower oil prices.
As a result, we continue to recommend GKN as a ‘buy’ for investors seeking a balanced return and willing to accept a medium level of risk.