Carr’s Milling (CRM), an agriculture, food and engineering group, came out with a great trading statement this morning:

“The final quarter of the financial year saw a strong trading performance by the Group which expects results for the full year to be ahead of market expectations…”

This company is really off most investor’s radars. There has been zero comment that I can see on the usual PI message boards and its rare to see more than 50k shares traded in a day. I doubled up my position, adding 500 shares at 599p as, I explain below, I see significant upside for the shares.

Details:

£51.5m market cap @ 587.5p
Net debt: 18.5m
EV: £70m

Carr’s is forecast by Investec to generate pre tax profits of £8.63m and EPS of 63.6p for 2010 & 70.13p EPS for 2011. I expect those forecasts to be upgraded and think its possible that Carr’s could do 75p EPS for the current financial year (ending 28/08/2011). This puts Carr’s on a forward PE of under 8. With a dividend yield of a shade under 4% and a positive management outlook I believe that Carr’s is undervalued at the current price.

The big driver of profit growth going forward should be the agricultural division, management are confident with 3 acquisitions in the past six months that will boost earnings in the current financial year. I also believe that longer-term earnings growth in this sector will be robust. Carr’s has two other divisions: Engineering is forecast to make a greater contribution in 2011, with an increasing forward order book. The only slight question mark is over Carr’s food division, which often suffers from poor margins however management seem to be on top of the issue.

I have a price target of 900p to be hit over the next 12 months, 50% upside from here. Given the positive trading, forecast earnings & dividend yield the downside from here looks pretty limited. Results are due out on November 8th.