Avon Rubber to bounce higher with four-year US Army contract win (AVON)

By James Moore


Avon Rubber (LSE:AVON) has been an amazing long-term hold over the past decade. Now it is set for another gain with the announcement of a four-year deal to supply body armour to the US Army.

The $265 million deal will see subsidiary Avon Protection provide X-Side Ballistic Insert plates to the US Department of Defence. 

The first orders are expected to ship in the 2021 financial year, Avon said. 

The Wiltshire manufacturer bought the ballistic protection arm of US giant 3M (NYSE:MMM) for £75 million in August 2019 to expand its military and law enforcement portfolio. The deal was completed on 2 January 2020. The equipment named in the deal was one of a number of products developed by 3M.

At a time when the S&P 500 firm has retraced from historic highs at record speed, and the FTSE 100 has dumped heavily under 7,000 due to fears about the long-term economic effects of the coronavirus, defensive shares are in particularly high demand. Predictable revenues, then, are highly sought after and so it is another tranche of good news for Avon. 

The contract “further strengthens the medium-term outlook and visibility for Avon Protection,” CEO Paul McDonald noted.

Government contracts offer reliable income over the long term and, as such, represent a reliable growth boost for companies that can deliver. Avon Rubber has proven its dependability to shareholders time and again. 

The share price is up 254% in the last five years. Across that time, compound earnings per share were up by around 5% a year. At a share price of 2,755p the key thing for newer investors is going to be finding an entry point.

The short-term technicals still show the shares as a strong buy, supported by a long-term 200-day exponential moving average of 1937p.

I still think there is more value to be had in a long bid with AVON. It is not necessarily overbought. 

A price to earnings ratio of 60 says to me that investors are highly confident in future growth and while the shares do not offer the kind of cut-price bargain you might find elsewhere, I would tip the Avon Rubber share price to keep bounding ahead of expectations.


Author: James Moore

This article does not provide any financial advice and is not a recommendation to deal in any securities or product. Investments may fall in value and an investor may lose some or all of their investment. Past performance is not an indicator of future performance.