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Scapa sticks to it

Near term, we think the adhesive products group's highly-rated shares could be glued to the spot
November 23, 2017

The short-term drivers that bind Scapa (SCPA) to customers of the group’s adhesive-based products can seem a little elusive. Particularly so when chief executive Heejae Chae says the industrial division – still a greater contributor to profits and sales than the healthcare business – has “never been about growth”, as he did when he walked us through half-year numbers. Consequently, Mr Chae and his team bear a greater responsibility than most public companies when it comes to managing shareholder expectations.  

IC TIP: Hold at 476p

As Scapa’s valuation attests, they’ve been adept at this, along with an even tougher job of building a group whose annual revenues should soon pass £300m. For that to happen this financial year, organic growth may need to step up. In the six months to September, the top line was again handed a free pass by favourable currency movements; all things being equal, revenue increased 1.3 per cent in the industrial segment and just 2.1 per cent in the higher-margin and expansive healthcare division.

At the group level, profits were also nicely boosted by a smart deal to reclassify a shuttered Swiss facility as commercial property, thereby doubling the site’s eventual on-sale value. The resulting exceptional gain of £7.4m all but covers August’s acquisition of Connecticut-based Markel Industries, a manufacturer of adhesive floor mats which Scapa expects to be earnings-accretive in the first full year of ownership.

On average, analysts expect pre-tax profit of £33.2m and adjusted EPS of 17.1p for the year to March 2018, against £22.8m and 14.8p in FY2017.

SCAPA (SCPA)    
ORD PRICE:476pMARKET VALUE:£730m
TOUCH:475-477p12-MONTH HIGH:522pLOW: 283p
DIVIDEND YIELD:0.4%PE RATIO:33
NET ASSET VALUE:72p*NET DEBT:3%
Half-year to 30 SepTurnover (£m)Pre-tax profit (£m)Earnings per share (p)Dividend per share (p)
20161358.54.5nil
201714615.47.5nil
% change+8+81+67-
Ex-div:na   
Payment:na   
*Includes intangible assets of £64.5m, or 42p a share