Share your thoughts on our News & Insights section. Complete our survey to help us improve.

Share research

Dowlais – higher Automotive volumes drive growth

Dowlais’ full-year revenues and profits rise, but the outlook for revenue growth flattens in 2024.
Dowlais - automotive steering performance in the right direction

No recommendation - No news or research item is a personal recommendation to deal. All investments can fall as well as rise in value so you could get back less than you invest.

Prices delayed by at least 15 minutes

Dowlais’ full-year underlying revenue rose 6.3% to £5.5bn, ignoring the impact of exchange rates. This was largely driven by volume growth in the Automotive division.

Underlying operating profit grew 10% to £355mn, largely because of the higher revenue. Price increases and cost cuts also helped improve profitability.

Underlying free cash flow came in at £93mn. Net debt was £847mn at year-end.

Dowlais expects 2024’s revenue to be in line with the prior year, weighted toward the second half. Operating profit margins and free cash flows are also set to rise.

A final dividend of 2.8p per share has been announced, taking the full-year total to 4.2p. A new share buyback programme for up to £50mn is set to start in April and complete within 12 months.

The shares were broadly flat following the announcement.

Our view

Dowlais’ full-year numbers failed to impress markets on the day, despite posting double-digit operating profit growth. The weak outlook for volumes and revenue in 2024 is likely what’s caused some caution among investors.

Diving into the business, its largest division, GKN Automotive, remains the driving force behind the group's improved performance. It produces drivetrain components, which are effectively a group of parts that connect a car's engine to the wheels and various other parts of the car to help drive it into motion.

The group's got market-leading positions on many of these components. It serves around 90% of global car manufacturers, with the group's parts finding their way onto around half of these manufacturer's cars. And because of the wide variety of car manufacturers this division works with, revenues are spread across multiple geographies which helps to diversify some risk if certain markets slow down for any reason.

With the switch to electric vehicles (EVs) looking inevitable, we think Dowlais could be a major beneficiary of the transition due to its market-leading positions in the EV space too. 2023’s automotive orders climbed to record levels worth more than £6bn over the contract lifetimes, with a mammoth 74% of this being EV-related.

The Powder Metallurgy business accounts for around a fifth of group revenue. It specialises in turning powdered metals into high-precision components. This should complement the EV transition but performance remains disappointing, with profitability still being hamstrung by inflated costs and operational challenges at some production facilities.

There are other challenges to be aware of too. With so much economic uncertainty hanging heavy over the market, not every consumer's confident enough to sign the dotted line for a new car right now. And disruptions to global supply chains have the potential to push up costs.

Elsewhere, the group's made big strides in restructuring the business in recent years, and cash flows are now in positive territory. Continued improvements in cash flows will likely put potential merger and acquisition (M&A) opportunities back on the table. That's a key part of the group's growth strategy, so don't be surprised to see some activity on this front in the coming years.

Ultimately, Dowlais has a strong market position, with the electric transition likely to be a big tailwind for the group. But in the near term, sentiment’s likely to be steered by the outlook for global car demand and volumes. That caution looks to be built into the valuation, which is towards the lower end of its peer group on a forward price-to-earnings basis.

Dowlais key facts

All ratios are sourced from Refinitiv, based on previous day’s closing values. Please remember yields are variable and not a reliable indicator of future income. Keep in mind key figures shouldn’t be looked at on their own – it’s important to understand the big picture.

This article is original Hargreaves Lansdown content, published by Hargreaves Lansdown. It was correct as at the date of publication, and our views may have changed since then. Unless otherwise stated estimates, including prospective yields, are a consensus of analyst forecasts provided by Refinitiv. These estimates are not a reliable indicator of future performance. Yields are variable and not guaranteed. Investments rise and fall in value so investors could make a loss.

This article is not advice or a recommendation to buy, sell or hold any investment.No view is given on the present or future value or price of any investment, and investors should form their own view on any proposed investment.This article has not been prepared in accordance with legal requirements designed to promote the independence of investment research and is considered a marketing communication.Non - independent research is not subject to FCA rules prohibiting dealing ahead of research, however HL has put controls in place(including dealing restrictions, physical and information barriers) to manage potential conflicts of interest presented by such dealing.Please see our full non - independent research disclosure for more information.
Latest from Share research
Weekly Newsletter
Sign up for Share Insight. Get our Share research team’s key takeaways from the week’s news and articles direct to your inbox every Friday.
Written by
Aarin Chiekrie
Aarin Chiekrie
Equity Analyst

Aarin is a member of the Equity Research team. Alongside our other analysts, he provides regular research and analysis on individual companies and wider sectors. Having a keen interest in global economics, he knows how macro-events can impact individual companies.

Our content review process
The aim of Hargreaves Lansdown's financial content review process is to ensure accuracy, clarity, and comprehensiveness of all published materials
Article history
Published: 21st March 2024