Avon protection from COVID-19

Avon (LON: AVON) won new contracts during the first half but they will probably not make much of a contribution in the six months to March 2020. The long-term outlook is positive, and the share price is more than one-quarter higher than at the start of the year.

All Avon’s factories appear to have stayed open and are producing normally with no indicated problems due to COVID-19.

Contracts have been won to supply side protection body armour plates and small arms protection inserts for the US. The former has a minimum value of $19m over an initial 18 months, although it could be worth a lot more, and the latter is worth $20m with deliveries starting in 2021.

There is also a $21m M69 aircrew mask order. Deliveries are starting this year.

Interims

Body armour and protection sales will be strong in the period. The main uncertainty will be how the diary equipment business is fairing. The milk price has been volatile and that could affect capital investment by farmers. This won’t have happened in the first half but could hamper progress in the second half and beyond.

Avon has moved from a net cash to a net debt position following the acquisition of 3Ms ballistic protection business.

Full year revenues are expected to increase from £179.3m to £226m, while pre-tax profit is set to improve from £31.4m to £36m. At 2760p, the shares are trading on 28 times prospective earnings for this year.

The outlook for military and law enforcement equipment is good. The recently announced contracts confirm this in the medium-term. Dairy is more difficult to predict.