Why I’m bullish on Fenner plc after positive update

Shares in reinforced polymer technology company Fenner (LSE: FENR) have risen by as much as 15% today after the release of an excellent trading update. The industrial company has stated that today’s news has been released ahead of the AGM on 11 January due to its materiality, since it now expects that results for the full year will be comfortably above previous expectations. As such, now could be the right time to buy it for the long term.

Improving performance

Within Fenner’s AEP business line, the principal oil and gas business is seeing an improving trend in terms of order intake and customer enquiries. While this is reflective of its strengthening market position, it’s also due to a better outlook for the wider industry. OPEC’s decision to cut oil production for six months has boosted the oil price and revitalised the industry, with investment likely to rise over the coming months as profitability improves.

Within AEP’s specialist industrial businesses, Hallite is well ahead of last year due mainly to marketing initiatives and operating efficiencies. Meanwhile, other businesses within the AEP division are performing broadly in line with the same period of the prior year.

Within Fenner’s ECS business line, the restructuring of the North American business is going well. There has been a modest increase in order intake in that region, while in Europe trading continues to be satisfactory. And while higher commodity prices bode well for the company’s operations in Australia, tight cost management by resources companies has meant that order intake has yet to pick up.

An appealing buy

While Fenner trades on a price-to-earnings (P/E) ratio of around 32, it was expected to increase its bottom line by an impressive 10% in the current year. Today’s update means that this figure will now be increased, which indicates that Fenner could offer fair value for money even after today’s share price gains.

Furthermore, with market conditions likely to improve within the oil and gas and wider resources industries due to rising commodity prices, its earnings growth outlook remains positive. And with restructuring yielding impressive results thus far, now could be a good time to buy and then hold.

Similarly, industrial sector peer BAE ( LSE: BA) also offers an upbeat growth outlook. Defence spending is likely to rise in the coming years thanks to the election of Donald Trump, who has repeatedly stated that the US must become stronger from a military perspective.

Allied to this is the potential for higher spending among NATO members, with a 2% of GDP minimum apparently being suggested by the President-elect. A gradual move away from austerity could help to quicken the pace of this change, while increasing spending across the emerging world could also aid BAE’s bottom line. And with the company trading on a P/E ratio of 13.8, it offers a relatively wide margin of safety for the long term.

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Peter Stephens owns shares of BAE Systems. The Motley Fool UK has no position in any of the shares mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.