January 20, 2011 8:00 pm

Fall in orders forces Invensys into reverse

Shares in Invensys fell 8 per cent on Thursday as the company warned of falling orders at its rail signalling business.

The industrial controls supplier said that its overall performance remained in line with expectations, but that it was awaiting the outcome of bids for several major rail contracts.

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Those include contracts to supply signalling upgrades on four London Underground lines as well as work on the rail development between Mecca and Medina in Saudi Arabia. Each of these projects could provide about £400m of revenue for Invensys.

The company is also thought to be bidding for rail signalling replacement work in Denmark, which could deliver a similar increase in sales.

Invensys said that a recovery in industrial capital expenditure had helped orders at its operations management division – which supplies software and control systems to global manufacturers – although the orders had been won at lower margins than average. And the company expects revenues and profits at the controls business – which supplies parts to white goods manufacturers such as Whirlpool and Electrolux – to suffer a “small decline” due to weak demand, particularly in North America.

Invensys resumed dividend payments in 2009 following a six-year hiatus and several years of recovery under Ulf Henriksson, chief executive.

Although its share price has not kept track with the recovery in engineering-related stocks more exposed to mining, oil and gas and power generation over the past year, they have enjoyed a strong run in the past six months, gaining about 50 per cent as expectations grew of a sustained recovery in its industrial end markets improved.

The shares, however, closed down 27.8p yesterday at 329.6p.

FT comment

Although some estimates of Invensys’ turnover and profits were edged down yesterday, the 8 per cent fall in the share price seems overcooked. UBS, for example, edged down group revenue forecasts by a modest 1.3 per cent to £2.46bn – that still implies 8 per cent organic growth for the year to March 2011 with another 6 per cent to come next year. Pre-tax profits are also forecast to rise from £179m towards £230m this year, with another £20m increase next year. A p/e ratio of about 14 for 2011 reflects share price weakness rather than the promise of spectacular earnings growth. But weakness in a stock that last year flirted with regulation from the FTSE 100 could offer a contrarian trading opportunity.

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