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

Investors in what has become of GKN suffered a topsy-turvy session yesterday.

The 264-year-old group – which made cannonballs used at the Battle of Waterloo and Spitfires for the Battle of Britain – was bought by Melrose for £8billion in a highly controversial deal in 2018.

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

In an update yesterday, Dowlais warned its results for 2023 are likely to be hit by proposed strike action in the US.

Union barons have been locked in talks with car makers Stellantis, Ford and General Motors over pay. 

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

As a result of the looming strikes, Dowlais said demand for the car parts it makes for leading manufacturers looks ‘uncertain’.

It overshadowed an otherwise strong first half in which the mid-cap business’s revenue rose 12 per cent to £2.8billion while profit soared 39 per cent to £177million.

Dowlais said trading over the six months to the end of June exceeded expectations and would have led to an increase in its annual outlook if the potential strike action was not hanging over the business.

Stifel analyst Mark Davies Jones said that Dowlais should manage to ‘weather a few weeks of production disturbance, and still hit numbers’ if the strike goes ahead.

But he warned that a ‘protracted dispute will clearly put pressure on the second half performance’.

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

At Melrose, the aerospace business warned it faced a £200million hit from an engine parts issue affecting a US firm.

Stock Watch – Keywords Studios

Keywords Studios fell 4.6 per cent, or 68p, to 1405p after the video game developer warned that entertainment strikes in the US were affecting its business.

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

But the actors’ strike in the US has affected its audio businesses and marketing studios, meaning organic revenue growth could be impacted.

On Monday, Pratt & Whitney’s owner RTX said up to 700 of its engines, which power Airbus A320neo jets, would need to be pulled for quality inspections from this year through to 2026.

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

The US was also proving to be tough for Chemring, which makes military explosives and technology to help its customers launch rockets and satellites into orbit.

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

It said officials wanted to assess the quality of raw materials provided by a supplier.

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

Chemring shares slid 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 defence company, won a further £130million order from the Government for weapons as the Ukraine war boosts military spending. 

Shares rose 0.5 per cent, or 5.5p, to 1044p.

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

DX Group rose 0.5 per cent, or 0.2p, to 43.2p after the delivery firm’s largest shareholder, Gatemore, backed the takeover proposal announced on Monday from the private equity firm 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 it should meet market forecasts for an annual profit of £45million to £48million.

The FTSE 100 rose 0.4 per cent, or 30.66 points, to 7527.53 and the FTSE 250 added 0.1 per cent, or 19.86 points, to 18542.3.