Red faces at GKN after new CEO fired

GKN's (GKN) abrupt removal of its chief executive designate Kevin Cummings represents a dramatic and worrying turn of events for investors.

The developments are sure to test the resolve of supporters in the City, many of whom had stayed loyal to the FTSE 100 engineering group in the wake of last month’s profits warning. Only last week, Investec Securities upgraded its rating on GKN from ‘hold’ to ‘buy’ with its price target lifted to 400p from 335p.

Now GKN shares are languishing below 290p, having slumped as much as 10% on the shock news that GKN will have to address its problems without a permanent leader. There are also fears that its full-year dividend will be next to get the chop.

Non-executive director Anne Stevens, who has extensive experience across both the automotive and aerospace industries, will step into the role on an interim basis once long-time CEO Nigel Stein goes at the end of this year.

Cummings, who joined GKN Aerospace in North America in 2008 and became its head in 2014, had been due to take the top job in January, having been unveiled by the group in September as an “excellent successor” to Stein. He had been instrumental in the acquisition of Fokker Technologies in 2015.

But his division has been at the heart of GKN’s recent difficulties, with aerospace accounting for one of two significant external claims revealed by the group in October that could result in a charge of £40 million in the fourth quarter.

Now it has emerged that a review of working capital across GKN’s aerospace plants in North America is likely to result in a write-off estimated to be between £80 million and £130 million, much of which built up before 2017.

This is on top of the £15 million charge revealed by GKN in October at its Alabama facility relating to revised assumptions on programme inventory and receivables balances. It also said last month that trading in the third quarter in aerospace had been disappointing with a significant reduction in margin caused by ongoing pricing pressure and continuing operational challenges.

Hans Büthker, formerly CEO of Fokker Technologies, will take on leadership of GKN Aerospace with immediate effect.

In the wake of today’s update, Panmure Gordon analyst Sanjay Jha cut his GKN price target back to 230p from 300p previously. He also cut his earnings per share (EPS) forecast from 30.1p to 23p and said he expected no final dividend to be paid.

The company’s aerospace issues have offset more resilient trading in its Driveline business, where last month’s update revealed good organic sales growth and a performance ahead of the rest of the market.

On Jha’s estimates, GKN still trades on a forward price/earnings (PE) ratio of almost 12. Not obviously expensive, but there’s clearly plenty of risk here and scrapping the final dividend would remove yield support.

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