Strix Group PLC
Strix is a global leader in the design, manufacture and supply of kettle safety controls and other components and devices involving water heating and temperature control, steam management and water filtration.
Strix Interim Results Presentation Sept 2020
Mark Bartlett, CEO, and Raudres Wong, CFO, discuss the recent set of interim results and the acquisition of LAICA, the Italian water purification business. The 38 min presentation is followed by 20 mins of Q&A.
Questions that were unanswered during the presentation and answered here:
What are the long term growth rates in the kettle controls and the water filtration markets?
Volume CAGR in Kettles is c.6–8% and has been for last two decades whilst value growth is closer to c.2-3% due to the continued evolution of the controls (cost reductions allowing more competitive offering to secure new projects). The Water category growth within Strix is estimated at >10% for the full year (2% H1) but going forward we would expect high double digit growth given recent acquisitions and a comprehensive portfolio of products.
What is your overall expected tax rate going forward?
We are estimating it at 4% this year due to some support from the Chinese government (previous guidance was 5%) and guidance of 6-6.5% subsequent years due to the addition of LAICA.
Could you please repeat the factors that affected adjusted GP? Did I hear you have a bad debts provision?
There is £315k on the balance sheet. There has been no bad debt in the company given we take 60% cash up front and 20–30% as a letter of credit. The remaining credit terms are covered by insurance.
Do you also expect Halosource to break-even by end of H2 20?
We are currently not breaking out our guidance for Halosource.
Does the growth of kitchens with instant boiling water present a serious threat?
No – we do not see this as a threat given our own technologies and our ability to supply technology into the Hot Tap market if and when appropriate.
Are you able to give any indication of your plans for earnings per share in 5 years’ time?
We are not making forecasts out that far at this time – further information will be given on revenue / EBITDA in due course.
LAICA has rather low gross margins? What can you get it to?
Margins are in line with that of existing Aqua Optima business but we would expect a positive improvement as we secure supply chain synergies and introduce new products. Furthermore growth is projected in the higher margin water category of LAICA versus the sourced Small Domestic Appliances
When does the LAICA earnout period end ? How many additional earnings accrue to the company vs the additional earnout payment?
The earnout period ends in FY22. To qualify for the max earn out, LAICA has to deliver €4.2m and €4.8m respectively in the two earn out years. The max earn outs are €4m and €3.1m respectively.
What will Mr Moretto’s share percentage in STRIX be after the deal is closed?
C.2% for both of the Moretto’s combined. (roughly €8M at £2.30)
Does COVID make integration of an overseas company very difficult?
We are very accustomed to working remotely given our geographical footprint and the knowledge and with the skill sets within both Strix and LAICA we do not see any issues with the integration regardless of COVID.
What % of your sales are online and what growth have you seen in this?
We have not disclosed the numbers but online sales have increased this year, particularly within the water category.
What percentage of global production capacity including LAICA is based in China?
A very high percentage
Will the LAICA vendors have a seat on the board?
According to what I can see online they will own nearly 3% of the company's equity while the current board apparently owns about 1%. If these numbers are right who will be in control?
The Morretto’s will hold less than 2% between them and Raudres, myself and Gary hold > 3%
Do you ever worry about the number of new products. What is the approach to allocating capital / R&D to competing new products?
Every business plan is stress tested and has its own ROI criteria.
Upgrades after results and strategic deal
Strix has published reassuring interims and announced the acquisition of LAICA, conditional upon approval from the Council of Ministers in Italy. Against a backdrop of global disruption caused by COVID 19, Strix’s H1 performance is in line with expectations. Net sales down 21% YoY, with a much smaller impact on net profits on the back of strong cost management. Encouragingly, FY 20 profit expectations are now underpinned, at around £28.9m PAT. Taking into account the LAICA deal, we provisionally upgrade FY 21 PAT/EPS by 6%. The shares are already up materially YTD, but the Strix growth story remains compelling.
Current valuation multiples remain undemanding for such a strong proposition at 16.6x PER '20, and 15.7x PER '21. Strix has shown a commitment to its dividend, and the 3% yield at the current price is also attractive.
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Signs of recovery now apparent
Today, Strix has published its H1 20 pre-close update (interims due in Sept). Against a backdrop of global disruption caused by COVID-19, Strix’s H1 performance is said to be in line with expectations. Net sales down 21% YoY, with a much smaller impact on net profits on the back of strong cost management. Encouragingly, there are now signs of a bounce-back in H2 with a solid performance for June and a strong order book for July and August. FY profit expectations are largely intact, which the market should respond well to.
Current share levels provide an attractively rated entry point. Valuation multiples are 12.9x PER 19, and 13.3x PER20. Strix has shown commitment to its dividend, and the yield at the current price is an attractive 4%. We estimate that fair value for the shares lies in the 220p-240p share price range.Download Now Missing Out Get our research first
CEO Interview - Signs of recovery now apparent
Mark Bartlett, CEO of Strix plc, discussess the company's trading update after a tough four months due to the COVID-19 pandemic. Despite these headwinds, this experienced management team have minimised the hit to the bottom line, and are now seeing strong orders coming through, giving confidence to a recovery in the second half.
Reassuring AGM update, still attractively valued
Strix 2020 AGM trading update: Strix last week issued a reassuring statement. ‘Strix has continued to make a solid start to 2020, given the global macroeconomic disruption caused by COVID-19…We have successfully implemented a range of efficiency measures and strategic initiatives to limit the impact on the FY forecast and continue to monitor consumer demand carefully as lockdown restrictions are eased’ CEO, Mark Bartlett.
Accordingly, we leave our FY 20/21 P&L forecasts unchanged. As a reminder, Strix’s final dividend will be paid shortly (3 June 2020). The Company’s dividend intention is to increase the dividend in line with future underlying earnings, from a 2019 base of 7.7p. This underlines the income attractions of this stock to investors, at a time when UK plc has been widely cutting dividend in response to COVID19 pressures.
Other important news: The new factory is on budget and set to be fully operational by Aug 2021 as planned. Strix has also announced a refinancing of Group debt facilities with RBS and Bank of China, for the first time, providing a £60m RCF with improved financial flexibility. Elsewhere, Strix remains on target to release 14 new products this year, mainly in H2, across their appliance and water categories, as well as the core kettle controls business.
The Strix share price has now rallied 60% from its March lows (a time of widespread market anxiety regarding the emerging pandemic). Strix has clearly reassured investors of its defensive qualities and remains a unique strategic asset on AIM, with industry leading margins and many organic growth initiatives underway.
Current levels provide an attractively rated entry point. Valuation multiples are 13.1x PER, 10.7x EV/EBITDA. The dividend yield at the current price is a compelling 4%. We estimate that fair value for the shares lies in the 220p-240p price range.Download Now Missing Out Get our research first
Solid FY19 results ahead of expectations & COVID 19 resilience
Robust FY19 update, still attractively valued
Strix is a unique strategic asset on the UK market, with industry leading margins and many growth initiatives underway. It screens well for investors with a ‘sustainability’ mandate, given its alignment to health products and improved filtration.
An attractive investment case. The share price has rallied by c 15% in recent months. However, in our view, this is still an attractively rated entry point to the shares. Valuation multiples are undemanding at 13x PER, 9.7x EV/EBITDA. The dividend yield at the current price is a compelling 4%. We estimate that fair value for the shares lies in the 220p-240p share price range.Download Now Missing Out Get our research first