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Scapa comes unstuck

The market sharply marked down shares in the adhesives business, after half-year numbers stuttered
November 20, 2018

It’s doubtful Scapa (SCPA) chief executive Heejae Chae was braced for the market reaction to these first-half results when he described them as indicative of "a solid trading performance and continued good progress". Trading may be "in line" with full-year expectations and analysts may have retained their bullishness, but shares in the adhesive products business fell a fifth after investors decided that a "challenging macro environment" outweighed the promise of a string of recent acquisitions.

IC TIP: Hold at 389p

The fearful had several numbers to cite in the half-year results. First was a fall in the top line, most keenly felt in the larger industrial division, where revenue dropped 4.2 per cent at constant currencies. Second was a contraction in trading profit in the healthcare division to £8.2m, even if the heavily adjusted figure edged up at the group level.

Mr Chae and his team will hope the stock sell-off proves to be an overreaction to a stuttering in normally robust growth, rather than a vote against Scapa’s acquisitive strategy. In short, the group has seen increasing competition and slowing growth among its medical technology clients, and intends to act as a turn-key manufacturing partner. The most recent deal – the purchase of Acelity’s woundcare product division – is expected to be "materially accretive" to earnings from FY2020, and means Scapa has completed three such technology transfer deals in the past year.

On average, analysts expect earnings per share (EPS) to hit 19p for the year to March 2019, and 20.6p in 2020.

SCAPA (SCPA)    
ORD PRICE:315pMARKET VALUE:£536m
TOUCH:315-316p12-MONTH HIGH:510pLOW: 357p
DIVIDEND YIELD:0.7%PE RATIO:28
NET ASSET VALUE:90p*NET DEBT:4%
Half-year to 30 SepTurnover (£m)Pre-tax profit (£m)Earnings per share (p)Dividend per share (p)
201714615.47.5nil
20181419.74.3nil
% change-3-37-43-
Ex-div:n/a   
Payment:n/a   
*Includes intangible assets of £80.8m, or 52p a share.