Strix Group Analyst Q&A: If growth strategy is executed, multiple will increase considerably (LON:KETL)

Strix Group

Strix Group plc (LON:KETL) is the topic of conversation when Zeus Capital’s Research Director Andy Hanson caught up with DirectorsTalk for an exclusive interview.


Q1: Strix Group have announced a trading update for 31st of December 2020, what key points did you note in the update?

A1: I think first and foremost, they gave confirmation that full year results will be in line with expectations as they stated back in July.

They’re actually marginally ahead of expectations because trading has been really, really strong in the second half of the year as we bounced back from lockdown. They’ve also indicated that cash generation has been good for the period and that the factory move that is ongoing is on time and on schedule and everything’s going well.

Q2: How has 2020 been for them during the pandemic?

A2: Strangely, it’s been a good year and the company have made a lot of progress in many areas, obviously they weren’t immune from what happened during 2020 and what is all going now.

In stark contrast to a lot of companies, they came out into March/April last year and committed to paying their FY19 dividends and also committed to paying the interim 2020 dividend. They’ve committed today that they will pay the full year 2020 dividend and they also left guidance in the market throughout the year and in July, they came out and said that profitability would be flat year on year.

So, in the circumstances they’ve had a really good year so looking back, if you’d told me that they would be flat in profit terms at the start of lockdown in March, I would have been very surprised.

So, I think in purely financial terms, they’ve had a very, very good year and the fact that the factory move hasn’t been delayed by anything that’s happened is also a major positive and I think the factory move is probably very positive for the business going forward.

Q3: Now I know it’s still uncertain times, but how do you view the outlook for the company?

A3: It’s interesting, after a good year in ’20, all things considered, the management team felt confident enough to do a Capital Markets Day in November and within that they outlined some quite aggressive growth targets for the next five years.

So, they’re saying that they can double revenue by 2025 and increase gross profit by upwards of 70% over that time so if they can achieve that, the outlook is very, very bright and certainly the outlook for FY21 is good.

They did the acquisition in October, which underpins growth, but I think underlying growth within the businesses is going to be strong this year as it bounces back so I think the outlook is very positive.

Q4: Just in terms of a valuation, how do you view Strix Group?

A4: Well, interestingly, it’s trading on about 15 times FY21 earnings, which looks very, very cheap when you look at the best-in-class industrial manufacturing companies such as Halma.

So, I still think there’s more room for the multiple to expand and I think if they execute on their growth strategy over the next 18-24 months, I think that multiple will increase considerably.

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