Inspecs ramps up production

There are a couple of trends that eyewear and lens designer and manufacturer Inspecs (SPEC) can look to as it eyes up future growth. The market is relatively fragmented, meaning that further acquisitions are a strategic focus. Populations in the company’s markets are getting older, helping demand. And margins in the sector tend to be high, due to the pricing model.

But recent events have hit the shares, which are down by more than 50 per cent year-to-date. These half-year results come only two months after the release of poorly received annual earnings, which were significantly delayed due to accounting problems within its US subsidiary Tura around “freight costs and scrappage”, which the cost of rectifying ultimately reduced inventory by over $1mn (£0.9mn).  

Revenue growth in the half helped the company into profit after last year’s loss caused by chunky foreign exchange movements and supply chain disruption. This uplift was driven by German eyewear supplier Eschenbach, which was acquired back in 2020, and volume growth. The underlying gross margin was up despite cost inflation pressures, rising by 140 basis points to 50.5 per cent. Confirmation of the expansion of production capacity through factory developments in Portugal and Vietnam, "to satisfy the increased demand from key accounts", was an important positive.  

Peel Hunt analysts said that there is “strong underlying momentum in the business”. But the house broker slashed its cash profit forecasts by 11 per cent and cut its target price from 425p to 395p in their latest note on the company. Inspecs’ shares don’t look as expensive as they did earlier in the year, and currently trade at 13 times forward earnings against the five-year average of 25 times according to consensus analyst forecasts from FactSet. Overall, sector trends should benefit it over the long term. Hold.

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