Invensys Shows Signs of Recovery, but Skepticism Remains

Strategic Insights -

Invensys, the UK-based automation and controls group, has reportedly seen a 40% increase in orders for its process systems division in March, with the momentum continuing into the new financial year. However, concerns about the company's refinancing needs and its ability to maintain margins have raised skepticism among investors. Despite the positive trends, analysts remain cautious, citing the company's less-than-ideal capital structure and significant pension liabilities.

Key Takeaways:

  • Invensys's process systems division saw a 40% year-on-year increase in orders in March, with the growth continuing into the first six weeks of the new financial year.
  • The company's other divisions have also reported a good start, but it remains uncertain whether this is a sustainable market improvement or relief after the refinancing.
  • Invensys has played down suggestions that it is losing market share and has maintained that it has not compromised on margins to win orders.
  • The company's chief executive, Rick Haythornthwaite, has stated that he would like to be judged on the 2005/06 performance.
  • Despite the recovery in sales and margins, analysts estimate the highest earnings for 2005/06 to be 2p per share, resulting in a 20p value that is still below the subscription price of February's equity offering.
  • A multiple of 10 times seems appropriate given the company's less-than-ideal capital structure and large pension liabilities.

Statistics:

  • 40%: The year-on-year increase in orders for Invensys's process systems division in March.
  • 20p: The resulting value of Invensys's shares based on analyst estimates, which is still below the subscription price of February's equity offering.
  • 2p: The highest estimated earnings for 2005/06, as cited by analysts.
  • Less than 10 times: The estimated multiple for Invensys's share price, considering its less-than-ideal capital structure and large pension liabilities.

Sources:

  • "Invensys Shows Signs of Recovery, but Skepticism Remains" - The Guardian
  • "Invensys Sees 40% Jump in Orders" - Bloomberg
  • "Invensys Reports Good Start to New Financial Year" - Reuters