09 Sep Avon Rubber: Is best-performing FTSE stock at risk of London exodus? | Business News
Asked to name the best-performing stock on the FTSE All-Share index during the last decade, most people might probably guess at a software company perhaps, or a high-flyer from the healthcare sector.
They probably wouldn’t, though, opt for a company that started life in 1885 as a manufacturer of pneumatic tyres, conveyor belts and tubes for milking machines.
That company is Avon Rubber and, over the last 10 years, its share price has risen by an incredible 3,146%.
The shares rose by another 6% on Wednesday as investors responded enthusiastically to the $130m acquisition of Team Wendy, a supplier to the US and Australian military based in Cleveland, Ohio.
The all-cash deal reflects the direction in which the company has been moving in recent years.
Avon – the name comes from Bradford-on-Avon, the Wiltshire town whose Sirdar Rubber Works was bought by the company back in 1915 – has been gradually evolving from its heritage rubber products into a hi-tech supplier of military and security equipment.
That process is due to be completed with the forthcoming £180m sale, first announced in July, of Milkrite Interpuls, a leading supplier of milking equipment to dairy farmers, to Swedish rival DeLaval Holdings.
It will leave Avon as a focused military and security supplier.
This part of the business has its origins in the manufacturing of gas masks. The company, which floated on the London Stock Exchange in 1949, supplied 20 million gas masks during the Second World War.
In the post-war period, however, gas masks were a relatively uncelebrated part of the business as the company focused instead on supplying the automotive industry. Investors began to show interest in the division, though, following Saddam Hussein’s invasion of Kuwait in 1990.
The subsequent Allied liberation of the Gulf state saw service personnel exposed to the risk of attack by chemical and biological weapons and, during the conflict, Avon supplied more than one million gas masks to Britain’s forces.
It also supplied lightweight survival suits, rubber boots and gloves to services personnel and, from that point, security and protective equipment became an increasingly important part of the business. Avon Tyres was sold to US rival Cooper Industries in 1997 and accordingly, during the early 2000s, Avon evolved from being a major car parts supplier with a small gas mask business to becoming a large gas mask supplier with a small car parts business. The final car parts operations were offloaded in 2006.
Central to the company’s success in recent years has been a willingness to invest in research and development and also to extend its product lines. As well as supplying gas masks and respirators to the armed services, it has gradually moved into supplying law enforcement agencies around the world and, from there, into fire protection. Its product line-up also now includes body armour for ballistic protection, underwater breathing protection, escape hoods, decompression data monitors, helmets and thermal imaging cameras.
Today’s acquisition is complementary to that portfolio.
Paul McDonald, Avon Rubber’s chief executive, said: “The acquisition of Team Wendy is another important strategic step in the transformation of Avon Rubber into a leading provider of life critical personal protection systems.
“Team Wendy is a high-quality business with complementary liner and retention system technologies and established positions in rest of world military and first responder helmet markets.
“Bringing Team Wendy into the same family with our existing Helmets & Armor business establishes Avon Protection as a global leader in military and first responder helmets, with an enhanced and broader product portfolio with stronger capabilities and routes to market.”
Team Wendy has had an interesting evolution of its own. It was founded by Cleveland-based entrepreneur Dan Moore in 1997 after his daughter, Wendy, died from brain injuries following a skiing accident.
It began as a manufacturer of ski helmets but over time evolved into a supplier to military, law enforcement and rescue agencies – as well as people on adventure holidays. Its anti-ballistic helmet liners have been used by the US Army and Marine Corps for more than a decade and its safety helmets and night vision equipment used by military, law enforcement and search and rescue agencies in more than 50 countries around the world.
The circumstances in which the company was founded were not forgotten today.
Mr Moore, who remains chairman and the principal shareholder of Team Wendy, said: “Team Wendy was founded to honour the legacy of my late daughter and improve head protection systems to prevent other families from experiencing a similar loss.
“My family has always agreed that we would only ever sell Team Wendy if it was to the right partner.
“In meeting with the Avon Rubber leadership team and understanding their vision, it was clear to me that they would honour her legacy and help to drive continued and sustainable growth and innovation.”
The takeover means Avon is even more focused on the United States, where 500 of its 840 employees are based and which currently accounts for 70% of sales. Avon announced today that, from now on, it will reporting its financial results in US dollars.
Not that the market appears to view that as problematic.
Annabel Hewson, aerospace and defence analyst at the stockbroker Stifel, told clients: “Avon has partly answered the ‘what’s next?’ question on the mergers and acquisitions front following the decision to exit Milkrite InterPuls. The Team Wendy business is both complementary and builds global reach.
“Moving to US dollar reporting also seems sensible, given the future bias of the business. Recent order news flow has been encouraging, and we welcome the statement that continuing operations are trading in line with expectations.
“Overall, interleaving acquisitions and disposals is no mean feat, and we admire Avon’s strategy here.”
Some long-term followers will mourn the loss of the milking equipment business – a leader in its field and a reminder of where this company has come from.
But investors these days reward focus above all else and especially when it is in a high-tech business.
Avon Rubber is certainly one of those. The hope for UK shareholders must be that, over time, it does not decide – with most of its revenue coming from the US – that it would be logical to list in New York rather than London.