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Devro unveils plans to improve margins

The sausage skin maker maintained its dividend and unveiled fresh growth plans after a difficult 2016
March 7, 2017

November's gruesome profit warning ensured that Devro (DVO) investors were braced for disappointment from its full-year results, and eager to discover how the sausage skin maker would get closer to full capacity. The answer came in the form of a strategic development programme, focused on enhancing sales capabilities, improving manufacturing efficiencies and launching differentiated products.

IC TIP: Buy at 182p

These measures are expected to generate returns of £13m-£16m a year by 2019, but have required short-term exceptional costs estimated at £12m-£14m, as well as capital investments of £7m-£8m. Altogether, the company said the spend would still be below that of the past three years. At least the dividend was maintained, and the shares did finish higher on the day.

Volumes of core edible collagen casings declined by 8 per cent. The biggest triggers of this slump were the closure of Devro's US plant, which forced the group to supply Latin American customers with redesigned products that it admitted had failed to meet customer needs, and stiff competition across continental Europe, Russia and China.

Analysts at Peel Hunt expect 2017 adjusted pre-tax profit of £30.5m (down from £31.2m in 2016), leading to EPS of 13.9p.

DEVRO (DVO)
ORD PRICE:182pMARKET VALUE:£304m
TOUCH:181-183p12-MONTH HIGH:319pLOW: 139p
DIVIDEND YIELD:4.8%PE RATIO:140
NET ASSET VALUE:65pNET DEBT:141%

Year to 31 DecTurnover (£m)Pre-tax profit (£m)Earnings per share (p)Dividend per share (p)
201224139.319.48.5
201324337.520.18.8
20142322.22.68.8
201523015.18.88.8
20162416.21.38.8
% change+5-59-85 

Ex-div: 30 Mar

Payment: 12 May