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Pricey Zotefoams can’t afford any setbacks

Another strong showing, but some teething problems across the Atlantic
Pricey Zotefoams can’t afford any setbacks

Zotefoams’ (ZTF) impressive growth story encountered a slight blip in the first half of 2018. The manufacturer of foam products used in automotive, aviation and other technical applications delivered its customary record revenues, but also registered a slightly lower return on those sales, due to a few teething problems executing its ambitious capacity expansion plans.

IC TIP: Hold at 520p

Unforeseen delays ramping up output at its new Kentucky plant resulted in higher than normal scrap levels and additional shipping costs as the group was forced to transport in extra goods from the UK to support local demand. That setback, together with unfavourable foreign currency movements, led gross margins to contract 1.4 percentage points to 34.1 per cent – increased volumes, polyolefin foams price hikes, strong appetite for high-performance products (HPP) and lower average input costs helped soften the blow.

Management claims that the Kentucky hiccup is now behind it, adding that the plant is currently working through Zotefoams’ big order book and being pampered with operational efficiency improvements. Demand for HPP, which supported by footwear products, delivered 82 per cent revenue growth during the period, is also expected to strengthen in the second half.

S&P Capital IQ consensus forecasts expect adjusted EPS of 18p for the year-end, rising to 21p in 2019.

ZOTEFOAMS (ZTF)   
ORD PRICE:520pMARKET VALUE:£251m
TOUCH:514-528p12-MONTH HIGH:592pLOW: 315p
DIVIDEND YIELD:1.2%PE RATIO:31
NET ASSET VALUE:168pNET DEBT:9%
Half-year to 30 JuneTurnover (£m)Pre-tax profit (£m)Earnings per share (p)Dividend per share (p)
201733.82.815.21.91
201837.94.608.12.97
% change+12+64+55+3
Ex-div:13 Sep   
Payment:11 Oct