MARKET REPORT: US car strikes put brakes on GKN automotive spin-off Dowlais

Investors in what has been GKN suffered a session of ups and downs yesterday.

Melrose bought the 264-year-old group, which made cannonballs used in the Battle of Waterloo and Spitfires for the Battle of Britain, for £8bn in a highly controversial deal in 2018.

The GKN Aerospace business remains part of Melrose, while GKN Automotive has been spun off as a separate listed group called Dowlais.

In an update yesterday, Dowlais warned that its 2023 results will likely be affected by the proposed US strike.

Union magnates have been locked in talks with automakers Stellantis, Ford and General Motors over wages.

As a result of the looming strikes, Dowlais said demand for the auto parts it makes for major manufacturers appears “uncertain.”

It overshadowed an otherwise strong first half in which revenue from the mid-cap business rose 12 per cent to £2.8bn, while profits soared 39 per cent to £177m.

Dowlais said trading during the six months to the end of June exceeded expectations and would have led to an increase in its full-year outlook if the potential strike had not loomed over the business.

Stifel analyst Mark Davies Jones said Dowlais should manage to “get through a few weeks of production disruption and still hit the numbers” if the strike continues.

But he warned that “a prolonged dispute will clearly put pressure on second-half performance.”

Dowlais shares sank 7.3 per cent, or 9.3 pence, to 118.75 pence.

In Melrose, the aerospace company warned it was facing a £200m hit from an engine parts issue affecting a US company.

Stock Watch – Keyword Studies

Keywords Studios fell 4.6 per cent, or 68 pence, to 1,405 pence after the video game developer warned that entertainment strikes in the United States were affecting its business.

The group, which provides services to companies such as Activision Blizzard, maker of Call Of Duty, said revenue rose 19.4 percent to £330 million in the first six months of 2023.

But the actors’ strike in the United States has affected its audio businesses and marketing studios, meaning organic revenue growth could take a hit.

On Monday, Pratt & Whitney owner RTX said that up to 700 of its engines, which power Airbus A320neo planes, would have to be retired for quality inspections from this year until 2026.

With GKN Aerospace involved in the Pratt & Whitney engine programme, Melrose estimated it could take a hit of up to £200m through 2026. The shares fell 1.3 per cent, or 6.2p, to 479.3p.

The United States was also proving tough on Chemring, which makes military explosives and technology to help its customers launch rockets and satellites into orbit.

Chemring warned that it was waiting for the US Department of Defense (DoD) to approve some deliveries of countermeasures worth around £25 million in revenue.

He said officials wanted to evaluate the quality of raw materials provided by a supplier.

That means delivery of £25m worth of orders could be delayed beyond the current financial year.

Chemring shares fell 6.1 per cent, or 18.5p, to 286p.

But it was not all doom and gloom for the industry. BAE Systems, Britain’s biggest defense company, has secured another £130m arms order from the Government as the war in Ukraine increases military spending.

The shares rose 0.5 per cent, or 5.5 pence, to 1,044 pence.

Fund manager JTC said it should beat market forecasts after a rise in revenue in the first six months of this year alongside its recent acquisition of US firm South Dakota Trust Company. The shares soared 8.7 per cent, or 58.5p, to 733p.

DX Group rose 0.5 per cent, or 0.2 pence, to 43.2 pence after the delivery company’s largest shareholder Gatemore backed the equity firm’s takeover proposal announced on Monday private HIG European Capital Partners.

Home improvement business Wickes gained 3.5 per cent, or 4.9p, to 143.4p as it said sales in the six months to July 1 were “resilient” and reiterated that should meet market forecasts of an annual profit of £45 million to £48 million.

The FTSE 100 rose 0.4 per cent, or 30.66 points, to 7,527.53 and the FTSE 250 added 0.1 per cent, or 19.86 points, to 18,542.3.