Stability was a key objective for Xaar (XAR) after the weakening Chinese construction and property markets reduced demand for the group's core ceramic tile-printing products last year. That objective now looks close. The year-on-year figures don't make for pleasant reading, but comparisons with the second half of 2014 suggest trading is bottoming out, with group sales down just 2 per cent.
The packaging business provides the greatest cause for optimism: product launches among Xaar's manufacturing clients are spurring demand for digital label printing. The core industrial segment could follow suit. Management says the installation rate of new printing equipment into ceramic tile plants has steadied, while the replacement of digital inkjet printing equipment is gaining traction in southern Europe.
Xaar's strategy of ploughing large chunks of revenue into research and development reduced the adjusted operating margin to 19 per cent - 7 percentage points lower than in the first half of 2014. But the margin was higher than in the second half of last year, thanks to cost-cutting and greater efficiency.
With new products in the pipeline, management is confident of a return to past form - even if its core market of China is currently in meltdown. Boss Doug Edwards tells us he's received reassurances from customers that construction markets have stabilised.
Broker N+1 Singer expects adjusted pre-tax profit of £17.3m, giving EPS of 20.1p (from £24.6m and 26.4p in full-year 2014).
| XAAR (XAR) | ||||
|---|---|---|---|---|
| ORD PRICE: | 497p | MARKET VALUE: | £383m | |
| TOUCH: | 493-497p | 12-MONTH HIGH: | 567p | LOW: 218p |
| DIVIDEND YIELD: | 1.3% | PE RATIO: | 36 | |
| NET ASSET VALUE: | 159p | NET CASH: | £58.6m | |
| Half-year to 30 Jun | Turnover (£m) | Pre-tax profit (£m) | Earnings per share (p) | Dividend per share (p) |
|---|---|---|---|---|
| 2014 | 60.4 | 15.3 | 16.7 | 6.0 |
| 2015 | 47.8 | 3.7 | 4.9 | 3.15 |
| % change | -21 | -76 | -71 | -48 |
Ex-div: 10 Sep Payment: 9 Oct *Includes treasury deposits of £21m | ||||
