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14 Feb | Avon Rubber

Today we’re talking rubber. If you’ve found your way to this page via a search that’s not too financially-focussed in nature, I hate to disappoint but we’re an investment site and the rubber in question is Avon Rubber; quite a successful operation out of Wiltshire in the UK and listed on the London Stock Exchange.

Avon Rubber operates in two main segments: protection and defense and dairy (after a period of re-structuring they’ve dropped their automative industry interests.) They’ve begun testing the water in the diving and aerospace markets too, but in the scheme of things these segments are secondary. For the time being at least.

Avon have a history in defense dating back to World War I when they produced gas masks for the British troops. Today, Avon’s respiratory protection products – their line in advanced chemical, biological, radiological and nuclear (CBRN) respiratory protection systems for the world’s military, homeland security, first responder, fire and industrial markets – are the recognised global market leader.

Their long-term, sole-source US Department of Defense contract sees Avon provide in the region of two million gas masks to US military personnel. A market, that despite budget cuts in the US, is predicted to grow in the forseeable future. Such a high profile contract provides promotion benefits well beyond the contract’s scope. It opens Avon up to further development opportunities in other areas of respiratory protection both in the US and worldwide markets.

No doubt down to to the state of world affairs today, Avon’s potential for growth in conflict regions such as the Middle East should see no slowdown in opportunities in the coming decade. Likewise, in the homeland security markets of the world, demand seems destined to head in one direction only.

But it’s not all war and destruction that keeps the coffers topped at Avon. The company also owns a 50% global market share in the dairy liner industry. Now my knowledge of farming amounts to having sat three full episodes of The Farmer Wants a Wife back in 2001. But I have it on good authority that a dairy liner is the rubber attachment that connects the cow to the milking machine. A bovine gasket, if you will.

The market for protein based foods – such as dairy – is surging in developing nations as burgeoning middle classes in countries like China and India, dramatically up there intake. As the provider of choice in the mature markets of Europe and North America, Avon are well positioned to secure a good proportion of the market share as it comes online in these emerging markets.

In line with this strategy, Avon have recently opened operations in China and are looking to do the same in India and South America.

I wont delve into the books too deeply here but for the 2013 financial year Avon’s revenue was up 17%, operating profit was up 22% and EPS up 32%. There’s plenty more Avon facts and figures at their website.

For the technical bods amongst us, even a quick glance at the 12 month chart below (courtesy of IG Index) seems to indicate that things are progressing quite nicely at Avon.

avon-rubber-12-months

Thanks again for dropping by.

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Paul
rsvp@investorsoiree.co.uk