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Scapa over delivers, again

RESULTS: Cost-cutting and a drive towards higher-margin growth areas will keep adhesives and tapes firm Scapa busy for years
May 29, 2012

Scapa has a habit of beating City forecasts and, with the ink only just dry on latest estimates, has done it again. Another wave of cost-cutting at the adhesives and tapes firm improved margins and delivered a 34 per cent increase in underlying operating profit. Recent share price weakness on slow progress at the electronics division and jitters over Europe should only prove temporary.

IC TIP: Buy at 60.5p

Self-help remains the story here. Cost-cutting improved underlying trading margin by 130 basis points to 5.5 per cent, and £5.4m of sales from US healthcare firm WEBTEC made up for low-margin business elsewhere. It also chipped in £0.5m of profit and hauled divisional margin up to 13.9 per cent. The industrial unit, responsible for three-quarters of revenue, did well, too. Profit was up two-thirds to £7.2m, driven by more savings and sales of tape to the French construction industry and for insulating fibre optic cables. Losses at the electronics business were disappointing though, but the benefit of recent investment should be visible this year. Worries about Europe should be put into perspective, too. Yes, the region contributes over half of sales, but two-thirds of that is from more reliable customers in the UK, Germany and France.

Broker Arden Partners is looking for current year adjusted pre-tax profit of £11.5m and adjusted EPS of 4.8p (£9.5m and 4.2p in 2012).

SCAPA (SCPA)

ORD PRICE:60.5pMARKET VALUE:£88.3m
TOUCH:59-62p12-MONTH HIGH:71pLOW: 40.5p
DIVIDEND YIELD:nilPE RATIO:13
NET ASSET VALUE 45p*NET CASH:£7m

Year to 31 MarTurnover (£m)Pre-tax profit (£m)Earnings per share (p)Dividend per share (p)
20081707.43.10.75
2009174-9.37.5nil
2010177-5.2-1.9nil
20111926.12.4nil
201219610.54.5nil
% change+2+72+88-

*Includes intangible assets of £31.7m, or 22p a share