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Devro falls flat

Growth in emerging markets was offset by decline in mature geographies
March 4, 2020

Devro’s (DVO) results for 2019 told two tales: strength in emerging markets as the company targeted growth, and a decline in its mature markets as demand softened - particularly in the UK, Japan and Europe. Overall the company’s sales fell flat for the year, which management said was partly due to higher pork prices and distributor destocking. 

IC TIP: Hold at 151p

The collagen casing provider ploughed on with its cost savings programme, having announced the closure of its Bellshill manufacturing site in Scotland last year. This strategy in the long-term is likely to improve the cash generation capacity of its asset base - though for now, £7.2m of restructuring costs and £45.9m of impairments have swung the company to statutory loss of £21.8m. However, underlying profit nudged up to £33.1m from £32.1m last year, as £7.4m in cost savings offset an adverse country mix and inflationary cost pressures. 

Going forward the casing manufacturer is targeting annual growth in edible collagen of between 2 and 4 per cent, with emerging markets growing by between 6 and 10 per cent. The group also noted that its manufacturing site in China was operating at normal capacity and guided towards no change in 2020 provided there was no material impact from Covid-19. Sales were particularly strong in the country, with a volume increase of 41 per cent in the second half. 

Analysts at Peel Hunt forecast an adjusted EPS of 15.4p and adjusted pre-tax profits of £34m for 2020, compared with 15p and £33.1m in 2019. 

DEVRO (DVO)    
ORD PRICE:151pMARKET VALUE:£ 252m
TOUCH:151-154p12-MONTH HIGH:222pLOW: 145p
DIVIDEND YIELD:6.0%PE RATIO:na
NET ASSET VALUE:45pNET DEBT:166%*
Year to 31 DecTurnover (£m)Pre-tax profit (£m)Earnings per share (p)Dividend per share (p)
201523015.18.88.8
20162416.21.38.8
201725721.69.38.8
201825317.57.59.0
2019250-21.8-24.89.0
% change-1---
Ex-div:26 Mar   
Payment:07 May   
*Includes lease liabilities of £0.8m