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Strix Group “new product launches in H2 driving FY20 growth” says Zeus Capital

Strix Group Plc (LON:KETL) Pre IFRS 16 operating profit and PBT came in marginally ahead of ZC forecasts at £31.5m and £30.3m respectively. Revenue at £96.9m was in line with revised forecasts showing 3.3% growth yoy (+1.8% ccy). Headline profit includes the impact of the acquisition of Halosource in the year, excluding this underlying operating profit increased c. 8% on c. 3% revenue growth post another strong margin performance.  Underlying gross profit margin was 42.3%, an 80bp yoy improvement driven by continuing efficiency gains and a good price performance, ahead of the 3.0%-5.0% annual pricing pressure. Organic PBT growth was strong at 9.9% £32.1m. In Controls, market share by value remains c.54% with Chinese share increasing on the back of growth in the healthy cooker market.

Today’s outlook statement indicates that majority of the impact from COVID-19 is likely to be felt in H1 with new product launches in H2 driving FY20 growth. ZC marginally reduces profit forecasts by 4% and 6% respectively in both FY20 and FY21. Post the recent market volatility Strix is trading on c. 8.0x current year earnings and yielding 6.7% with a strong balance sheet.

  • Underlying profit growth strong: Stripping out the effect of Halosource on the results, underlying operational performance was exceptionally strong. Profit Before Tax increased 9.9% on top line growth of c.3%. Strix once again increased gross margin, at 42.3% it was up 80bps yoy and getting back towards historical highs. This stems from Strix’s ability to offset the annual 3%-5% price deflation in controls through its continual focus on operational efficiency. Pricing is assumed to have been broadly flat in the core controls segment during the year.
  • Halosource underpinning product releases: Management’s confidence in the FY performance is driven by the strong product release schedule in H2. This is across all areas of the business with 14 new products due to come on stream, 7 in the Water category, 5 in Appliances and 2 in Controls.
  • Forecasts: Assuming a flat performance in profitability at the half year, leaving profit estimates unchanged in FY20 at £32.4m would have meant 12% growth yoy in H2. New estimates assume 4.4%. On this basis, assuming previous assumptions with regards Halosource breaking even in FY20 remain intact, forecasts assume the core business declines c. 3.5% in the year
  • Valuation: Trading on sub 8.2x earnings and yielding 6.7% the shares are broadly on the same valuation as when Strix Group floated in August 2017.

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