Strix Group Analyst Q&A: Post-June demand continues to pick up (LON:KETL)

Strix Group

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

Q1: Strix Group this week have provided interim results for the 6 months to June 30th, what were the key takeaways?

A1: They announced a trading update this morning for those first 6 months of the year, obviously, with everything that’s happened with regards to COVID-19 has been a tricky period for most companies in the market. I think the key takeaways for the company are that it’s dealt with everything that’s been thrown at it exceptionally well.

So, whilst you’ve had lots of companies withdraw guidance from the market and suspend the dividend, they have continued to provide guidance to the market and it’s also paid its final dividend for FY19 and I believe it’s got every intention to pay the dividend for FY20.

The guidance it’s bought out today is basically saying that profitability will be flat in FY20 so the 12 months to December this year, relative to FY19 which, I think when you look at what’s happened in the first half, is a very very strong message.

Q2: Has this performance affected your forecast in anyway?

A2: I have bought my forecasts down slightly for this year, my revenue number falls 10-11% but at the bottom line the downgrade is 3%. I think you have to put that into perspective of when I introduced forecasts into the market back in March time and this is the first time we’ve heard from the company.

I did think I’d have to downgrade more than that looking at what other companies have been saying so the fact the downgrade is low single digit and the management team are actually quite confident of hitting that number this year should be taken quite positively. It’s a small downgrade, it shouldn’t detract from the good work that the business has done in the first 6 months of the year.

Q3: How would you describe then the outlook for the company, presumably given the fact that they’re giving guidance, they have some clear visibility?

A3: These guys don’t have long term order books but they have repeat business, people buy kettles on a monthly basis so they do have a degree of visibility. Interestingly, they do say in the statement today that post-June demand has continued to pick up and they have good visibility for the next 6-8 weeks so the visibility is pretty good. I do think they have additional levers to pull should things not go as planned which will allow them to still make the numbers just because of the quality of the business model that the company has. The big caveat to that is we have another lockdown period in Europe and North America which fingers crossed doesn’t happen but were that to happen I would need to look at my forecasts again.

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At this moment in time with where we are, I’m very confident in that full year number.

Q4: Finally, what are your thoughts on Strix Group in terms of valuation?

A4: For the current year, it’s trading on 13 times earnings and it’s yielding about 4%, I’m assuming that the dividend is flat year-on-year just like profitability but will continue to grow once we move into next year so a good yield on it.

The earnings multiple looks sound in this environment, I think if you put the context of the business having flat profitability and trading through this period exceptionally well, I think once we come through this and we get into next year, you could argue that it should really have a rerating, 13 times is too low for the quality of earnings the business produces.

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