Dowlais Group PLC (LSE:DWL) shares fell despite the automotive supplier reporting strong growth, including from electric vehicle orders, as it said it is "closely" monitoring potential strike action by US United Auto Workers (UAW) union.
Having spun out from Melrose in April, the FTSE 250-listed group reported half-year adjusted revenue of £2.8 billion, up 10% on the prior year on a constant currency.
Helped by significant margin expansion, headline operating profit of £177 million was up 40%, ahead of consensus forecasts, with £33 million of adjusted free cash flow was also better than expectations despite investment in growth and productivity.
Net debt of £849 million was better than internal targets, which when combined with an increase in underlying earnings (EBITDA), led to a reduction in leverage to 1.4 times from a 1.5x as at the date of demerger.
The group said it secured £3 billion of new orders, predominantly in EV-related products, with these bookings said to be at the sort of profit margins it was targeting.
Management left guidance for the full year unchanged.
Shares fell 5% to 121.65p by lunchtime on Tuesday.
Broker Stifel said: "We think that there would have been scope for an upgrade to FY guidance at this stage, were it not for the proposed UAW strike in the USA... Now it is a question of how long that strike may last, assuming it goes ahead - we believe that Dowlais can weather a few weeks of production disturbance, and still hit numbers - but a protracted dispute will clearly put pressure on 2H performance.
"This is frustrating given the clear underlying performance improvement that the group is delivering - but we still believe that the proof of commercial momentum and of operational execution that these results provide should strengthen the medium-term 'Buy' case for the shares, which continue to look very good value at c 4X EBITDA."