GKN races to 20-month high

A third-quarter trading update in October threatened to derail GKN's strong post-referendum recovery. But all it did was temporarily wind Britain's biggest car and plane parts manufacturer, which has since ridden the Trump rally and is now chased to 2015 highs following respectable full-year results.

Admittedly, reported numbers are flattered by a first full year's money from the October 2015 acquisition of Dutch firm Fokker. Translating huge overseas earnings back into weak pounds was a huge benefit, too. But both second-half sales and trading profit easily beat consensus estimates, and comments from chief executive Nigel Stein were well-received, too.

Sales were up 22% at £9.4 billion, although ahead by a more modest 2% after currency gains of £862 million and £654 million of acquisition benefits. Organic trading profit was down 7%, again due to acquisitions, FX and £39 million of restructuring costs.

However, management profit before tax was up a better-than-expected 12% in 2016 to £678 million, giving earnings per share (EPS) of 31p.

"This is a good set of results with GKN continuing to make underlying progress in line with our expectations," said Stein. "We expect 2017 to be another year of further growth, helped by the benefits of the actions taken in 2016 and GKN's constant focus on continuous improvement."

Investors liked the numbers so much they cashed the shares up as much as 7% to a 20-month high near 367p.

GKN now trades on 11.4 times Societe Generale's estimate for 2017 EPS of 32p, rising to 34.8 next year. At a big discount to the market, SocGen says 'buy' and tips the shares up to 400p. Jonathan Hurn at Deutsche Bank also thinks GKN "remains cheap" on his estimates of 34.3p of EPS this year.

Organic sales at the commercial aerospace operation rose 3%, but were offset by a 2% drop in defence work. Trading profit at the division leapt 24% to £339 million, although organic profit - stripping out Fokker's £66 million contribution and a £31 million currency gain - fell 10%. That's down to ramp up costs on engine programmes and lower production of the Airbus A380 and Boeing 747-8 jets.

GKN's huge driveline automotive division grew organic sales by 6% to £4.2 billion and profit by 11% to £323 million. Organic sales growth of 6% still beat market growth of 5%, although restructuring tipped the unit £5 million into the red.

Elsewhere, the sintered products division made 8% more in 2016, although organic profit fell 3%. It was the land systems business that sticks out though. Profit there slumped by 38% following a decline in North American demand for agricultural equipment and the end of two chassis contracts. In 2017, Land Systems becomes part of the driveline division.

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