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ConvaTec saga continues to hobble Scapa

The adhesive products specialist experienced hits to trading profits in both of its divisions
November 19, 2019

Scapa (SCPA) was pushed into a first-half loss by medical technology group ConvaTec’s (CTEC) decision to exit a supply deal early, over which Scapa is pursuing $83m (£64m) in damages. 

IC TIP: Sell at 232p

The loss of the ConvaTec contract drove Scapa’s healthcare trading profits down for the period, with an associated loss of margin and overhead recovery contributing to a drop of 24.1 per cent to £6.6m. This also brought £9.2m in exceptional write-offs, including a £3.2m goodwill impairment. Healthcare revenues benefited, however, from a full contribution from October 2018 acquisition Systagenix – the deal that prompted ConvaTec to abandon its contract with Scapa. ConvaTec contends that the acquisition was in breach of its agreement with Scapa, which was worth $30m in annual revenues to Scapa’s healthcare business.

The group’s industrial arm fared little better in terms of trading profits, which fell by 9.7 per cent to £10.2m on a constant currency basis. Revenues increased in spite of market headwinds, particularly in the automotive space, and the company expects these to persist.

Berenberg forecasts adjusted pre-tax profits for the March 2020 year-end of £27.9m, rising to £30.9m in FY2021.

SCAPA (SCPA)    
ORD PRICE:232pMARKET VALUE:£360m
TOUCH:232-233p12-MONTH HIGH:434pLOW: 145p
DIVIDEND YIELD:NILPE RATIO:145
NET ASSET VALUE:92p*NET DEBT:43%**
Half-year to 30 SepTurnover (£m)Pre-tax profit (£m)Earnings per share (p)Dividend per share (p)
20181419.74.3nil
2019161-1.0-0.6nil
% change+14---
Ex-div:na   
Payment:na   
*Includes intangible assets of £119.7m, or 77p a share. **Excludes lease liabilities of £8.6m