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BOC Q2 results
BOC’s second quarter turnover in sterling was up 2.4% and operating profit (pre-exceptional) was up 5.7%. At CER turnover and operating profits were up 1% and 4% respectively; these results indicates an overall improvement in margins, both at CER and sterling continuing the strong performance. Operating profit margin improvement in the second quarter was driven by the larger industrial & special products business (47.1% of operating profit) with margins of the other businesses below those of the comparative period.
Industrial & special products business (sales mainly to customers in the fabrication, medical and scientific sectors who need smaller volumes of gas generally supplied in cylinders) turnover was down due to disposals, but was the main driver of profit growth. However, as in the first quarter, sales excluding the prior year’s contribution from the disposed businesses were up 6%. Margins improved by 256bps. Turnover was up in Europe driven by the introduction of new products in the UK, acquisitions, an increase in volumes in Poland and better prices in Ireland. Lower volumes in Australia were offset by better pricing. BOC plans build a helium plant in Australia indicating company expectations of the region.
Process gas solutions (installs and operates plants for industrial customers, 35.0% of operating profit) was the main driver of turnover growth, up 13.5%. Stronger demand and an increase in prices in the UK to recover higher energy costs increased turnover. Operating profit rose by 10.9%. 3% of the increase in turnover was a result of passing on higher energy costs, as a result there was no corresponding increase in operating profits. Though it appears otherwise (i.e. though margins fell) the company has done well to pass on increases in costs.
BOC Edward (which supplies the semiconductor industry, 6.2% of operating profit) turnover was down 1.9% with operating profit down 20.4% due to lower volumes. With sterling costs and dollar sales, the weakening of the dollar reduced operating profits by £2m (i.e. at CER operating profits were down 2.7%). The short term outlook for this business remains mixed.
BOC’s 14.0p free cash flow per share is good, which is more than 80% of the EPS.
Medium term outlook remains positive. The main concerns are the performance of BOC Edward and the weakening of the dollar. The larger businesses are performing well.
BOC’s share trades at a prospective PE of 14.3× (994p) in line with the sector. The 4.2% yield is at the higher end of the range for the sector.
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