Avon Rubber (LSE: AVON) could get May off to a blistering start when it publishes interim results on Wednesday.
The FTSE 250 business, which builds protective masks for security services, the military and police forces, is building a head of steam right now. It’s announced a raft of multi-year contract wins with the US Department of Defense (DoD) since the start of 2019, deals worth an aggregated maximum of $350m and which will be profits-enhancing from the second half of this year.
Avon may be experiencing sales problems at its Milkrite and InterPuls divisions, operations which produce milking apparatus for the farming industry, but progress at its Protection division is offsetting this. And there’s plenty of reasons to expect those upcoming six-month trading details to impress on this front again.
As well as advising it was making “good progress” with regards to exploring military sales opportunities with the DoD and other global customers, in January Avon boasted of a “strong pipeline” of opportunities in the law enforcement and firefighting arenas. It added sales to these sectors in particular should pick up in the second half following the order disruption it had experienced due to the US government shutdown over the winter.
Don’t have a cow, man
Investor demand has boomed in recent weeks in expectation of a strong May release, with Avon’s share price rising 13% since the same point in March. And I reckon there’s scope for extra gains following next month’s update, and not just because of the excellent progress Avon is making with its protection products.
In January, the FTSE 250 firm bemoaned the softness in the dairy industry in the first quarter, with weak milk prices denting farmer confidence and thus demand for high-tech milking products. What’s more, it warned that higher feed prices in the three months to May would make conditions even tougher.
However, signs are beginning to emerge which suggests that the softness in the dairy market could be moderating. Data this week from the USDA showed milk production in March dropped 0.4%, reflecting the recent descent in milk cow numbers on American farms, and cutting output growth for the first quarter to just 0.2%.
Dividend dynamo
With herds thinning, we could be on the verge of seeing a pick up in milk prices and a subsequent recovery in demand for Avon’s agricultural tech. It’s quite possible that, in combination with that sprightly sales momentum over at Protection, we could see earnings forecasts for this year and next upgraded (City analysts are currently expecting a 2% profits fall in the year to September 2019 and a 4% rise in fiscal 2020). And this could see dividend estimates receive a shot in the arm too.
That’s not to say that the company’s dividend outlook is anything like shoddy. The defence giant has lifted payouts at a rate of knots over the past half a decade and the number crunchers are expecting more healthy growth in the medium term, to 20.8p per share this year from 16.02p last year, and to 27.1p next year.
Bigger yields can be found than Avon’s 1.5% and 1.9% for this year and next, respectively, but for those seeking strong and sustained dividend growth in the years ahead, I believe it’s a great share to snap up today.
