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Xaar surprised by demand

Investors rightly focused on the rapid take up of printing technology firm Xaar's new P3 product line rather than flat half-year underlying profits of £1.3m.

Demand for its third-generation inkjet printing technology meant a much improved performance in Europe, where sales climbed 68 per cent as result of the adoption of the technology by the industrial sector for applications such as ceramic tile decoration. Overall sales to the industrial segment climbed by 131 per cent year on year .

But that strength also caught the company by surprise, forcing it to shelve plans to shut its factory in Sweden, which would have saved £2m a year, so that it can meet stable demand for mature P1 print-heads, largely from the graphic arts industry in China, and allow its Huntingdon plant to concentrate purely on P3 production. The decision meant £1.1m of previously provisioned restructuring costs were released, flattering reported profits.

Xaar is working to add further capacity, though, investing £2.8m during the first half of 2010, with another £4m-£5m earmarked for new kit in the second half. This will see Xaar add 20 per cent new capacity by December, building to 20,000 units a year by mid-2011, compared with 4,000 at the start of 2010.

Broker Panmure Gordon expects full year pre-tax profits of £4.8m and EPS of 5.2p (from £2.6m and 3.6p in 2009).

XAAR (XAR)

ORD PRICE:131pMARKET VALUE:£82.4m
TOUCH:128-134p12-MONTH HIGH:139p78p
DIVIDEND YIELD:1.9%PE RATIO:31
NET ASSET VALUE:60pNET CASH:£8.2m

Half-year to 30 JunTurnover (£m)Pre-tax profit (£m)Earnings per share (p)Dividend per share (p)
200920.9-0.78-1.41
201023.91.792.21
% change+14---

Ex-div: 25 Aug

Payment: 24 Sep

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More analysis of company results

IC View

Xaar's share price has lived up to management's growing optimism, jumping 58 per cent since full-year figures in March. That implies a forecast PE ratio of 25, which is too rich for us. Fairly priced.

Last IC view: Fairly priced, 83p, 18 Mar 2010

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