Rising energy costs and hide prices provided a brisk headwind for Devro in the first half of 2012, but investment in more efficient production lines and rising sales of the company's higher margin select product mean the long-term growth story remains intact.
Devro's capital expenditure has totalled £60m over the past two years, and finance director Simon Webb said the company will spend another £35m in 2012, including a further upgrade to its Czech factories and the addition of more capacity in Australia, which is struggling to keep up with the growth in demand for its Select sausage casing in Japan. Select, a direct replacement for traditional gut casings, commands a 15 per cent price premium to Devro's more mass market casings, and now accounts for 8.1 per cent of sales. That's up from 6 per cent at the December year-end, leaving Devro well on track to hit its target of 10 per cent of sales by 2013. Mr Webb pointed to strong growth prospects in Germany, a market in which 70 per cent of sausages still use traditional gut.
Broker Investec expects adjusted pre-tax profits of £43.5m and EPS of 20.9p this year (from £41.9m and 20p in 2011).
DEVRO (DVO) | ||||
|---|---|---|---|---|
| ORD PRICE: | 301p | MARKET VALUE: | £498m | |
| TOUCH: | 300-301p | 12-MONTH HIGH: | 335p | LOW: 228p |
| DIVIDEND YIELD: | 2.7% | PE RATIO: | 14 | |
| NET ASSET VALUE: | 84p | NET DEBT: | 23% | |
| Half-year to 30 Jun | Turnover (£m) | Pre-tax profit (£m) | Earnings per share (p) | Dividend per share (p) |
|---|---|---|---|---|
| 2011 | 107 | 19.6 | 9.5 | 2.50 |
| 2012 | 115 | 19.6 | 9.5 | 2.65 |
| % change | +8 | - | - | +6 |
Ex-div: 29 Aug Payment: 5 Oct | ||||
