STRIX GROUP PLC ORD 1P (LON:KETL) is the global leader in the manufacture of kettle safety controls with a market share by value of over 50%. Its controls are used an estimated 1 billion times a day by 15% of the World’s population across more than 100 countries. Structural growth of c.10% compound in Less Regulated markets will drive volume growth but even in Regulated markets the combination of the replacement cycle and increased penetration means growth will be positive. Despite the strong performance since float (c.+37%) Strix currently trades on a FY17 EV/EBITDA multiple of 9.1x and a PER of 12.1x (assuming a conservative 19% tax rate). Factoring the actual tax rate of c. 3% the PER falls to 10.1x in FY17 and 9.2x in FY18. Management has committed to an attractive dividend, we forecast the company will pay a 2.1% dividend yield for the five months it is listed in FY17, followed by 5.1% in FY18, with 10% growth in FY19.
Uniquely positioned with over 50% global market share: Strix’s global market share is c.39% by volume and +50% by value with the business playing a pivotal and high margin role within the kettle value chain. Its nearest competitor by volume controls just 17% of the market. Globally 174m units were sold in FY16 and the company estimates the market CAGR will be c.7.6% between FY16 and FY20. A new product suite is coming on stream offering high specification products at price points competitive to low cost, lower quality producers. As a result, we expect Strix to continue to win share in the faster growing Less Regulated markets and continue to consolidate its position in Regulated and Chinese markets. In FY16 Strix increased market share in China by 20%, the single largest market by volume.
Forecasts: Confidence in the likely outcome for FY17 is heightened due to market share won in the last twelve months and with trading having remained solid into the new year, as evidenced in today’s interim results. Over the medium term, the new U9 product suite will drive volume growth. Despite a short order book, visibility on both pricing and volume is better than may be envisaged as OEM production programmes last for several years. Pricing is agreed in advance and typically maintained throughout the life of a kettles’ production, on the majority of volume.
Valuation: The current valuation for Strix Group Plc is well supported by an average of peer group multiples, FCF Yield and DCF valuation methods. The business currently trades on an EV/EBITDA of 8.3x to December 2018, and PER of 11.1x, this falls to 9.2x when applying the actual cash tax rate of 3.0%. The dividend is 1.8x covered by earnings using a conservative 19% tax rate.
