Shares in Castings (LON:CGS) plunged after the engineering group warned adjusted pre-tax profits for the year to March 2027 are likely to be flat. The downgrade reflects the costs of catching up production at its William Lee site, where a third-party power supply issue continued to impact H1 results.
Power at the William Lee site was restored at the end of May. Unfortunately, ‘the incremental cost of catching-up production continued beyond that date’, said Castings. And with production arrears ‘not yet resolved’, the company reduced its FY27 earnings guidance.
Catch-up costs rise
For the uninitiated, Castings is an iron casting and machining group which dates back to 1835. The Brownhills-headquartered company has long-term relationships with the major OEMs (original equipment manufacturers) in its core European heavy truck market.
In addition to the commercial vehicle sector, Castings also supplies the wind power, agriculture, rail and material handling markets.
| Year to 31 March | FY27E | FY28E | FY29E |
| Revenue (£m) | 182.2 | 189.7 | 197.6 |
| Adjusted PBT (£m) | 9 | 13.4 | 14.3 |
| Dividend per share (p) | 18.8 | 19.1 | 19.5 |
Source: Zeus Capital
The disruption stems from a third-party power supply issue at the William Lee site, home to the new foundry line that entered production in Q4 FY26 and added roughly 15% gross capacity.
With production arrears not yet resolved, Castings’ board is prudently reducing its FY27 adjusted pre-tax profit outlook from £13 million to £9 million. However, FY27 revenue guidance was left unchanged at £181.1 million.
We wouldn’t rush to own Castings shares, which have shed 30% of their value on a five-year view. However, fans of recovery situations might add the stock to their watchlists.
Castings trades at a discount to industrials peers. In addition, the company pays progressive dividends and offers an attractive yield.
Temporary setback
Today’s profit warning reflects a short-term operational setback rather than weak demand. And Castings also has a net cash balance sheet, which should enable it to ride out short-term challenges.
Moreover, management is focused on optimising the new foundry line and delivering on the group’s ‘strong forward order book’ in H2.
Castings is winning new work from wind energy customers, and there is potential for a recovery in demand from heavy truck OEMs in time. Broker Zeus argues: ‘Long-standing OEM relationships, investment in capacity and capability, and opportunities in the US, wind energy and agriculture can drive long-term, through-the-cycle earnings and dividend growth.’
