Investors are regularly counselled on the desirability of a diversified portfolio, but problems can arise for companies if they’re overly reliant on a single revenue stream. Inkjet printing technology group Xaar (XAR) was both shackled and exposed by a disproportionate reliance on selling into the ceramics market (particularly in China). But the group is putting its house in order, and is launching a new portfolio of products aimed at multiple market sectors.
The group’s transition means that 80 per cent of full-year revenues were derived from products launched in the past two years, or from the acquisition of Engineered Printing Solutions, while the proportion of sales linked to the ceramics market fell by 10 percentage points year on year to 34 per cent. The transition also involves a move away from a vertically integrated manufacturing model, which we believe will reduce capital drag, a point borne out by a 49 per cent reduction in the capex bill through 2017.
Broker N+1 Singe forecasts adjusted profit of £12.6m for the December 2018 year-end, giving EPS of 13.7p, against £18m and 20.7p in 2017.
| XAAR (XAR) | ||||
| ORD PRICE: | 317p | MARKET VALUE: | £248m | |
| TOUCH: | 314-317p | 12-MONTH HIGH: | 508p | LOW: 261p |
| DIVIDEND YIELD: | 3.2% | PE RATIO: | 22 | |
| NET ASSET VALUE: | 188p* | NET CASH: | £43.9m** | |
| Year to 31 Dec | Turnover (£m) | Pre-tax profit (£m) | Earnings per share (p) | Dividend per share (p) |
| 2013 | 137 | 40.1 | 43.3 | 8.00 |
| 2014 | 109 | 23.1 | 25.0 | 9.00 |
| 2015 | 93.5 | 13.6 | 16.6 | 9.45 |
| 2016 | 96.2 | 17.9 | 19.4 | 10.0 |
| 2017 | 100 | 12.3 | 14.3 | 10.2 |
| % change | +4 | -31 | -26 | +2 |
| Ex-div: | 31 May | |||
| Payment: | 29 Jun | |||
| *Includes intangible assets of £37.9m, or 48.5p a share **Excludes £0.75m in treasury deposits | ||||
