Strix is already establishing itself as an Investors Chronicle favourite. Back in August, Simon Thompson outlined the investment case for Strix (KETL) at the time of its private equity-backed flotation on Aim. A couple of months on, when we covered the company’s half-year figures, we reckoned that, even with the share price above its admission price of 100p, the shares still looked a viable income option. But when you look where the company is positioned in its primary markets – together with the underlying demographics – it becomes apparent that it also has genuine growth potential.
Dominant market positions
Low utilisation rates for its technology
Low effective tax rate
R&D draw on capital
Dividend cover fairly narrow
As befiting its stock ticker, the Isle of Man-based company designs and sells safety controls in kettles – the sort of widget that stops a kettle from bursting into flames if you were to switch it on without filling it up with water – easily done, no doubt. Strix holds dominant market positions both in the UK and abroad, with 39 per cent of the global market by volume, and 50 per cent by value.
The disparity between those two figures points to the higher-margin nature of the Strix product line. That’s significant because consumers in emerging markets are increasingly opting for up-market products as their incomes rise. You get an idea of what this potentially means to the company, when you consider that Strix has been able to increase its market share in China from around 20 per cent in 2012 to over 50 per cent in 2016. The company also successfully launched its U9 series during the first half of the year, designed to ensure that Strix has an "appropriate product range to target all segments within the kettle market". However, the imperative to innovate (the ‘better mousetrap’ axiom) means that development spending is a constant draw on capital. That said, its patent protections are strong.
Another avenue to growth is linked to low levels of utilisation. It’s hard to imagine a UK household without a kettle, but that isn’t the case abroad. According to Zeus Capital, only around 12 per cent of US households own a kettle against against 73 per cent in Germany, while a rate of 123 per cent in the UK suggests that nearly a quarter of households have a kettle to spare. However, utilisation rates in the US are on the rise “driven by changing consumer tastes as the health benefits of tea are increasingly acknowledged and appreciated”.
STRIX (KETL) | ||||
ORD PRICE: | 139p | MARKET VALUE: | £ 264m | |
TOUCH: | 137-140p | 12M HIGH / LOW: | 145p | 127p |
FORWARD DIVIDEND YIELD: | 5.0% | FORWARD PE RATIO: | 11 | |
NET ASSET VALUE: | 137p | NET CASH: | £12.5m |
Year to | Turnover | Pre-tax | Earnings | Dividend |
31 Dec | (£m) | profit (£m) | per share (p) | per share (p) |
2014 | 78.1 | 26.4 | na | na |
2015 | 79.9 | 22.0 | na | na |
2016 | 88.7 | 24.1 | na | na |
2017* | 92.6 | 26.6 | 11.3 | 2.9 |
2018* | 96.1 | 29.1 | 12.4 | 7.0 |
% change | +4 | +9 | +10 | +141 |
Normal market size: | 5,000 | |||
Matched bargain trading | ||||
*Zeus Capital forecasts, adjusted profit & EPS figures |