INVESTORS in GKN voted with their feet yesterday. Pre-tax profit from continuing operations might have quadrupled to £363m, but in the event it wasn’t good enough. The shares closed down by four per cent at 201.50p.
We think the reaction is likely overdone. For most analysts, the results were either bang on or better than expected, suggesting it was the outlook that spooked the markets. There was the usual stuff about “uncertainty around market conditions” in 2011, but there is plenty of positive sentiment too.
The automotive sector is likely to enjoy particularly strong growth in 2011, with external forecasts showing that global light vehicle production should reach just over 78m vehicles, an increase of 5 per cent, thanks to China and the US. That is good new for GKN’s all-important Driveline business, which is turning 80 per cent of quotations into business. Elsewhere, especially in aerospace, the picture is less good.
But there is still much to recommend in these shares, which are well-exposed to the cyclical recovery in the automotive sector. With the shares trading on 10x 2011 earnings, investors could do much worse.