Shares in protective equipment maker Avon Technologies (LON:AVON) leapt after the firm rasied its FY26 guidance. The company now sees revenue, margins and returns on capital ahead of current market expectations.
Strong order book prompts raised outlook
Avon announced the increase to guidance as part of a pre-close trading update for the year to 30 September. At the same time, it held an investor teach-in setting out the next phase of its growth strategy.
The firm said it had seen ‘strong momentum’ in recent months and a ‘significant’ rise in its order book since the H1 results. In Europe, it has received several new orders through the NSPA (NATO Support & Procurement Agency) programme.
In the US, its Team Wendy subsidiary has also grown its order book materially in H2. This includes the award of the largest share of the recent NG-IHPS (next-generation integrated head protection system) order.
In addition, Team Wendy has seen strong demand for its next-generation ACH (advanced combat helmet), new US Air Force orders and the renewal of the Australian Defence programme. Both Avon and Team Wendy have started FY27 with ‘very good visibility for the coming year’, the firm said.
FY26 results to beat market expectations
As well as a strong order book, Avon noted production at Team Wendy had recovered, contributing to a ‘significant’ improvement in its H2 operating margin. As a result, the group operating margin will be ‘comfortably ahead’ of the firm’s target range to 14% to 16% and the 15.5% consensus forecast.
WIth revenue now seen growing around 12.5% against a previous forecast of around 8.5%, that translates into a substantial increase in forecasts for operating profit. Moreover, a higher level of operating profit means ROIC (return on invested capital) will also be ‘significantly’ above the firm’s previous target.
New guidance against current consensus
| FY25 Actual | FY26 Consensus | FY26 New Guidance | Change on FY25 | |
| Revenue ($m) | 314 | 340 | 353 | +12.5% |
| Adj operating profit ($m) | 40 | 53 | 60 | +50% |
Source: Sharesify, Avon Technologies
Long-term targets explained
The firm has made significant progress in the last three years and has codified its approach as Improve, Grow, Compound. In a strategy teach-in for investors, it explained how it intends to drive further improvement, allowing it to invest in growth and generate increasing cash and returns.
By improving execution and growing its market lead through lifecycle revenue and new contracts, it aims to compound shareholder value. It expects this approach to generate annual revenue growth of over 5%, operating margins of 16% to 18% and annual EPS growth of more than 10%. Further, the firm set out five -year targets for revenue of more than $600 million and ROIC above 18%.
Investors seem to have taken their eye off the defence sector in recent months, beguiled maybe by the AI infrastructure story. As a result, Avon shares had gone nowhere over the summer, but they’re back on the radar today.
Increased defence spending is a fact of life for governments everywhere nowadays, despite concerns over budget deficits. And having the best kit and protecting personnel is about as high a priority as there is.
We estimate that based on Avon’s new forecasts, operating profit likely rose 50% instead of 33% in FY26. That’s a chunky upgrade on a relatively small increase in revenue growth from 8.5% to 12.5%.
Obviously analysts will be hiking their forecasts for FY27 and FY28 after today’s update. The firm said it will publish its own forecasts with the FY26 results in November, so we’ll wait for those.
