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It Is Not Our Problem… Yet

13 October 2017 by lberuti

The earning season is only beginning but it has already claimed some casualties. And one of them has not even reported yet… Engineering group GKN ( GKN Plc ) brought forward a scheduled trading update to warn investors that “management pre-tax profit” would be only slightly above last year’s £678mln. The company has a large aerospace division. It admitted that trading at the North American arm in the third quarter of the year has been disappointing and that efforts to boost productivity had failed to pay off. Additionally, GKN has been made aware of two legal claims related to aerospace and driveline technologies that will result in a charge of about £40mln in the fourth quarter. Neither of the claims, which came “as a complete surprise”, should suggest a fundamental problem with GKN’s operational functions according to the management, even though they declined to give further details. Investors were not impressed and they punished GKN’s stock, sending it almost 10% lower. They consider it is very much an equity issue at the moment though, and GKN’s 5-year CDS was only 3bps wider at 91bps, in an otherwise globally positive market (iTraxx Main finished the day 0.5bps tighter at 55.5bps).