Revolution can be an unpredictable affair, as Xaar (XAR) can attest to. The printing specialist is moving out of its legacy ceramics printing business in favour of a more diverse portfolio of advanced printing technologies, namely printheads. In 2016, the company set itself the goal of £220m in yearly sales by 2020. However, a December 2018 profit warning, which came after two summer warnings, predicted full-year revenues at just £64m.
An increasingly relevant product mix
New partnerships being secured
Disappointing uptake of some new products
Growing dependency on extending credit to customers
Legacy business in rapid decline
The thinking behind Xaar’s strategic shift is to target high-value growth markets. It launched seven new products over the two years to 2017 – the revenues from these, along with the acquired Engineered Printing Solutions business, accounted for 80 per cent of full-year revenues. It’s investing in raising barriers to entry in inkjet technology, too, with over 317 patents and patent applications as of 2017. In particular, Xaar has sees a big growth opportunity in the 3D printing space. The company believes that the industrial 3D printing market is growing by as much as 23 per cent per year. But these types of markets are hard to crack and time frames are very unpredictable.
Xaar has struggled to get new products off the ground. This is troubling, given the proportion of revenues now expected here. Its latest profit warning said a “lower-than-expected uptake” of its flagship thin film 1201 printhead is hitting short-term revenues. This is being compounded by declining sales in the ceramics business, which accounted of 34 per cent of the £100m sales achieved in 2017, down from 44 per cent of sales the previous year. Its intellectual property portfolio is small compared with that of big competitor Xerox, which has 11,470 active patents. A research partnership between Xerox and Fuji, which also produces printing technology, yielded 569 US patents in 2017 alone, according to figures from the Intellectual Property Owners Association.
In a bid to kick-start interest in its new ranges, the company has been extending lines of credit to customers who are “driving the adoption of our new products”. At its last full year, Xaar’s total receivables had nearly doubled, with the average credit period at 92 days, from 62 days in 2016. Meanwhile, disappointing first-half sales led to a year-on-year leap in stock from £19m to £30m, while six-month revenues dropped 20 per cent to £35m.
XAAR (XAR) | ||||
ORD PRICE: | 154p | MARKET VALUE: | £120m | |
TOUCH: | 150-154p | 12M HIGH: | 375p | LOW: 126p |
FORWARD DIVIDEND YIELD: | 2% | FORWARD PE RATIO: | na | |
NET ASSET VALUE: | 181p* | NET CASH | £36.8m | |
Year to | Turnover | Pre-tax | Earnings | Dividend |
31 Dec | (£m) | profit (£m)** | per share (p)** | per share (p) |
2015 | 93.5 | 20.8 | 24.5 | 9.5 |
2016 | 96.2 | 19.5 | 21.2 | 10.0 |
2017 | 100.1 | 18.0 | 20.7 | 10.2 |
2018** | 65.5 | -2.0 | -2.2 | 3.0 |
2019** | 71.5 | -6.8 | -7.4 | 3.1 |
% change | +9 | +240 | +236 | - |
Normal market size: | 5,000 | |||
Beta: | 0.03 | |||
*Includes intangible assets of £38m, or 48p a share | ||||
**N+1 Singer forecasts, adjusted PTP and EPS Figures waiting to be amended post-warning |