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Devro looks to end of legacy products in China

The collagen casing maker expects the impact of legacy products in China to end in 2019
February 26, 2019

Collagen casing producer Devro (DVO) will soon be rid of its issues with legacy products in China. The company had previously exported products from its UK manufacturing sites to be sold there, but import duties meant that this was not always profitable. In 2017, the manufacturing site it had developed in China to address this issue became operational, but it still had to offload the “legacy product” that had already been shipped there. This had a negative impact on volumes in China over 2018, but disregard the legacy issue and sales were up 5 per cent – with domestic production formulated to suit regional palates.

IC TIP: Hold at 181p

Overall volumes were flat year on year. Pre-tax profits fell on a reported basis, but on an underlying basis improved 9 per cent to £32.1m. Within this metric, Devro stripped out £12.3m of exceptional items, split between spending on the Devro 100 efficiency programme and restructuring its operational model globally. Chief executive Rutger Helbing said Devro 100 “over-delivered” in 2018, resulting in £4.5m of long-term cost savings compared with the £3m-£4m range previously indicated, and that no more costs would be incurred from the programme.

Analysts at Investec expect pre-tax profits of £37m during 2019, giving EPS of 16.6p, up from £32.1m and 14.4p in 2018.

DEVRO (DVO)    
ORD PRICE:181pMARKET VALUE:£302m
TOUCH:179-181p12-MONTH HIGH:235pLOW: 151p
DIVIDEND YIELD:5.0%PE RATIO:24
NET ASSET VALUE:88pNET DEBT:97%
Year to 31 DecTurnover (£m)Pre-tax profit (£m)Earnings per share (p)Dividend per share (p)
20142322.22.68.8
201523015.18.88.8
20162416.21.38.8
201725721.69.38.8
201825317.57.59.0
% change-1-19-19+2
Ex-div:28 Mar   
Payment:10 May