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Xaar faces a test of vision

One and a half years into a new strategy, the printing specialist is showing signs of diversification
September 8, 2017

Countless organisations’ current strategy refers to a ‘2020 vision’. It may lack invention, but it’s a neat pun, and in the context of investing, at least attempts to inject a bit of patience into the market. Eighteen months into its own iteration of the plan, inkjet printing specialist Xaar (XAR) is getting a clearer picture of the challenges ahead.

IC TIP: Hold at 374p

One of these was already well known. Sales into the ceramic tile market, which once accounted for three-quarters of revenue, dropped another 25 per cent in the first half of 2017, masking an impressive 60 per cent growth in other product revenue. It is the latter trend, particularly in the fast-growing product printing and packaging division, which gives chief executive Doug Edwards (pictured) confidence that Xaar can hit its bullish annual sales target of £220m in three years’ time.

Beyond acquisitions, a compound annual growth goal of more than 30 per cent will need all the help it can get. Unusually for a UK company that exports nearly all of its products, the pound’s decline has provided little support. That’s because sales are typically booked in sterling – a feature that could yet aid the top line, given many of Xaar’s competitors sell in yen or dollars. Increasingly, those peers also extend credit lines to customers, which partly explains the 44 per cent swell in inventories to £19.8m.

Broker Peel Hunt expects full-year adjusted pre-tax profit of £13.5m and EPS of 14.7p, down from £19.5m and 21.2p in 2016.

XAAR (XAR)    
ORD PRICE:374pMARKET VALUE:£291m
TOUCH:373-379p12-MONTH HIGH:520pLOW: 325p
DIVIDEND YIELD:2.7%PE RATIO:22
NET ASSET VALUE:182p*NET CASH:£38.3m
Half-year to 30 JunTurnover (£m)Pre-tax profit (£m)Earnings per share (p)Dividend per share (p)
201644.57.78.73.3
201744.05.76.03.4
% change-1-26-31+3
Ex-div:14 Sep   
Payment:12 Oct   
*Includes intangible assets of £37.6m, or 48.4p a share