Avon Protection’s (LON:AVON) share price has taken a beating in the last year as the business was hit with supply chain issues and a major failure in body armour testing. But a quick decision by management to cut loose its problematic body armour business may help turn its fortunes around.
UK-based Avon Protection manufactures respiratory and ballistic protection equipment for military, law enforcement and fire personnel. In 2020, the company became one of the best performers in the market, with its shares doubling over the year. It was seen as a great success story under CEO Paul McDonald, who transformed it from a supplier of automotive parts to defence contracting.
What went wrong at Avon Protection?
But 2021 has not been so kind. The group’s shares plummeted – around 44% – in November after it announced that it had launched a strategic review of its body armour business after its bulletproof vests destined for the US military failed testing. Over the year to the end of September, the business recorded a loss of $35.6m and a revenue of $248.3m.Over 12 months, Avon Protection’s shares are down 67.32%. But in the past month they have started recovering, and are up 7.61% to £11.60. This is a good sign, but it’s still a long way away from its 52-week high of £36.60.
The recovery came as the management team took the decision to wind down Avon Protection’s body armour business. The group is targeting a $15m reduction in overheads following the closure, and has a good pipeline of orders for the next year that should help it meet its revenue targets.
On course to hit target revenue range
In the group’s earnings call, chief financial officer Nicholas Keveth said the company has an order book of $143m already, putting it in a good position to reach its target revenue range of $260m to $290m.
CEO McDonald added: “As you look at the future shape of the group, the respiratory and head protection businesses, which have been delivering for shareholders, are the backbone of Avon Protection. This is where our focus now sits, and there remains some exceptionally high-quality businesses at the heart of this group. We’ve invested significantly to improve our operational capabilities as we adjust to being a larger business, and we’ve made further progress with our organic product portfolios and is the reason why both I and the board remain confident in the medium-term prospects for Avon Protection.”
Meanwhile, Keveth, who is retiring, has been replaced by Rich Cashin, previously president of strategy and corporate development at Ultra Electronics and a divisional finance director for Meggitt.
It’s not going to be plain sailing, by any means
It’s not going to be smooth sailing in 2022, but there is hope for the company yet. As the pandemic continues to disrupt supply chains, Avon Protection, like many other businesses will need to conduct its business in a significantly challenging operating environment. It will also be winding down its armour business and refocusing the company, which means the next year will be one of transformation.
In a recent note published in November, Andy Chambers, industrials analyst at Edison Investment Research, wrote: “We anticipate a strong recovery in FY23 EPS due to loss elimination and growth in the core respiratory and helmets activities.”
