- 25 per cent rise in annual revenue to £119mn
- Organic revenue growth of 6 per cent
- Six percentage point decline in Ebitda margins
- EPS edges up to 15.2p to support 6 per cent higher dividend of 8.35p
Isle of Man-based Strix (KETL:230p), a global leader in the manufacture and design of kettle safety controls and components for water heating and filtration products, has been reaping the benefits of the complementary acquisition of Vicenza-based LAICA in the autumn of 2019. The Italian company focuses on water purification (water jug filters, water dispensers, bottle and coffee machine filters) and the sale of small household appliances for personal health and wellness.
Strix delivered 25 per cent higher revenue of £119mn last year, including a £22.7mn contribution from LAICA which was mainly reflected in Strix’s appliance category (revenue up from £3.7mn to £12.9mn) and water category (revenue increased 82 per cent to £21.4mn). Analysts at Shore Capital estimate that LAICA accounted for between £4.5mn to £5mn of the group’s £33.7mn operating profit, a healthy return in relation to the consideration of €21mn (£17.6mn) in cash and shares paid to date and an estimated contingent earn-out of €6.9mn.
However, group operating profit only increased by £1.6mn on the prior year, and adjusted pre-tax profit of £32.2mn (from £30.9m in 2020) was shy of Zeus Capital’s £34.6mn estimate at the time of the half-year results. Headwinds in commodity prices, freight cost inflation, supply chain pressures, labour costs, and higher energy costs explain the more sluggish profit growth. Adverse foreign exchange rates clipped 3.5 per cent off revenue, too.
Cost pressures can be seen in the group’s distribution costs (increased 84 per cent to £9.2mn) and administration costs which were 45 per cent higher at £5.1mn, albeit mainly due to the inclusion of LAICA. True, the Italian company’s higher-margin product sales limited the decline to 1.6 percentage points in Strix’s gross profit margin, but the full impact was seen in the Ebitda (cash profit) margin which slipped six percentage points, hence why the bumper revenue increase only produced pedestrian profit growth.
To mitigate the impact of cost inflation, Strix has implemented price increases on some of its legacy products in both kettle controls (the segment has returned to pre-Covid-19 revenue levels) and water categories. Management will be implementing further increases across the wider product range, which combined with a range of efficiency measures, foreign exchange rate and commodity hedging arrangements should minimise the impact of cost inflation said chief executive Mark Bartlett.
The more challenging cost environment explains why Shore Capital is factoring in flat earnings per share (EPS) of 15.2p this year whereas Zeus is looking for 16p. It also explains the de-rating in Strix’s share price since the half-year results (‘Simmering up for new record highs’, 22 September 2021).
Based on consensus estimates the shares trade on a 2022 price/earnings (PE) ratio of 14 – nine points less than six months ago – and offer a prospective dividend yield of 3.8 per cent. That’s a fair valuation, and one that should offer significant upside in a more benign trading environment as Strix looks to boost revenue to around £190mn by 2025. Further acquisitions will play a part. However, but I am erring on the side of caution, having first recommended buying the shares, at 100p, in my pre-IPO analysis (‘Tap into a hot IPO', 7 August 2017). Hold.
Bloomsbury’s earnings beat
- Analysts upgrade full-year pre-tax profit and EPS estimates by 15 per cent to £25.3mn and 23.6p
- Digital resources division hits target of £15mn annual revenue and £5mn profit
Bloomsbury Publishing (BMY: 385p) has posted a major earnings’ beat after delivering an “exceptional performance” in the final month of the 2021/22 financial year, driven in part by Sarah J. Maas’ new title, Crescent City: House of Sky and Breath, a global number best seller. This is the second upgrade in the past two months.
The enduring appeal of JK Rowling’s Harry Potter books shows no sign of waning, either, even though the first book was published 24 years ago. Ongoing growth of digital revenue has made the business more resilient, too, as the group repositions from mainly being a consumer publisher to a digital business-to-business publisher in the academic and professional information market. The division, Bloomsbury Digital Resources, hit its revenue and profit targets that were set out in 2016. Growth in digital is good for working capital, as highlighted by Numis’s raised closing net cash position of £33mn (£26mn before), some of which can be recycled into further complementary acquisitions.
I included Bloomsbury’s shares, at 229p, in my 2019 Bargain Share Portfolio and the board has since paid out 34.9p share of dividends. Analysts upgraded their target prices to 430p (from 400p), equating to a cash-adjusted forward price/earnings (PE) ratio of 14.6, and I am doing the same. Buy.
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