The Avon Protection PLC (LSE: AVON) share price has hit 1,100p, marking its lowest point since 2017. After peaking at 4,490p in November 2020, it has now fallen over 75%! Does this represent a great buying opportunity, or is it a sinking stone?
Key details
Formerly known as Avon Rubber, Avon Protection PLC is a British company with a long history in the manufacturing of rubber-based products. However, 2020 represented the culmination of a decades-long process by which Avon transformed itself into a producer of ballistics and respiratory protection systems for the military, law enforcement, and emergency responders.
Avon had been making personal protective equipment since the 1960s and manufactured the S6 and S10 respirators for the British Armed Forces throughout the latter half of the 20th century. This part of the business became its most profitable wing, particularly after it acquired International Safety Instruments, Inc in 2005 and started selling the M50 mask to the US Department of Defence in 2009.
2020 was a great year for the company. Orders increased by 23%. Revenue was up 30%. Management expanded the business by acquiring Team Wendy, a helmet and protective gear producer.
All of this great news caused the share price to almost double over the course of the year. So, what went wrong?
Overexcitement and setbacks
Avon Rubber completed its transformation into Avon Protection by selling Milkrite, a rubber tubing producer, and using those proceeds to purchase Team Wendy. This final pivot to protective gear clearly excited investors as they pushed the share price to all-time highs.
But this acquisition was costly and the Covid-19 pandemic brought with it the same challenges for Avon that it did for most other businesses. While sales of its M50 mask stayed strong, the 4,490p share price in November 2020 put the company’s value over £1bn. Projected revenue for 2021 was only £186m. A crash was all but inevitable.
This was responsible for the sustained selling off period seen over the course of 2021.
The share price then tanked further when Avon’s new body armour design failed a key US Army test. This denied the company a much needed and valuable contract. Its new helmet design was also rejected, due to a complaint by a competitor. Avon had initially secured this contract in September 2021 but, from what I gather, this rejection is only causing a delay as the design is retooled. But it couldn’t have come at a worse moment for the share price.
Do I buy?
So, what is my outlook? Avon Protection managed to reduce its debt between 2020 and 2021. Delays aren’t good but they don’t mean total failure. Avon’s price-to-earnings ratio is also very low.
But, based on current revenues it could struggle to pay its 2.54% dividend.
Despite this, I will be adding it to my portfolio.
It’s a risky move, but once Avon improves its products, I think we could see a significant share price resurgence.
