In April, we upgraded Sprue Aegis (SPRP) to a buy recommendation, citing “plenty of reason for optimism” as the “dark clouds that settled over Sprue in 2016” were drifting away. Those clouds formed when some of the home safety group’s smoke alarms started giving off a premature low battery warning signal. However, remediation was swift and effective, limiting any reputational damage and enabling management to broker a new manufacturing and supply agreement (commencing in March 2018) with US multinational Flex.
You could be forgiven for thinking that the latest half-year figures show that the planned transformation to “a lean, technology-driven safety products business”, to use executive chairman Graham Whitworth's words, is well under way. Revenues were broadly flat on 2016, with strong sales in Europe, the Middle East and Africa offset by lower demand in the UK. However, it should be remembered that domestic sales got a boost in the comparable period due to the implementation of private landlord legislation by the UK government. Management has been driving down fixed costs, leading to a 6.2 percentage point rise in the gross margin (pre distribution fee) to 31.7 per cent. Sprue Aegis remains in transition mode, but the bottom line is that it turned a net loss of £0.58m to a profit of £1.27m.
Broker Stockdale envisages a pre-tax profit of £4.6m and EPS of 9.1p in the year to December 2017, rising to £6.1m and 12p in 2018 (from £2.3m and 5.5p in 2016).
| SPRUE AEGIS (SPRP) | ||||
| ORD PRICE: | 210p | MARKET VALUE: | £96.4m | |
| TOUCH: | 205-215p | 12-MONTH HIGH: | 245p | LOW: 154p |
| DIVIDEND YIELD: | 3.8% | PE RATIO: | 26 | |
| NET ASSET VALUE: | 66p* | NET CASH: | £10m | |
| Half-year to | Turnover | Pre-tax | Earnings per | Dividend |
| 30 Jun | (£m) | profit (£m) | share (p) | per share (p) |
| 2016 | 25.9 | -1.14 | -1.3 | 2.5 |
| 2017 | 26.0 | 1.30 | 2.8 | 2.5 |
| % change | 0.3 | - | - | - |
| Ex-div: | 12 Oct | |||
| Payment: | 27 Oct | |||
| *Includes intangible assets of £11.3m, or 25p a share | ||||
