Strix Group “performed so strongly over the last three years” says Zeus Capital (LON:KETL)

Strix Group plc (LON:KETL) has confirmed that FY21 results are in line with market expectations. ZC estimates were top end of consensus, as a result we take the opportunity to revise forecasts. In FY21 PBT reduces by 5.7% to £32.6m due to the impact of on-going cost headwinds, with the impact on profit after tax reduced to 2.8% due to a reduction in the tax rate. Conservatively, we run the lower base into FY22 and FY23 and reduce profit before tax expectations by c. 6%. Despite the small revision to estimates, Strix has performed well during the year, in part, attributable to the acquisition of LAICA in late 2020. LAICA’s operations have been integrated into the Water and Appliances divisions bringing scale and additional momentum to both. These areas of the business will underpin the ambitious growth aspirations, reiterated today, set out by management of doubling revenue by FY25. The Controls business has had a strong year and we expect it to have returned FY19 levels of revenue and profitability. The Strix share price has been caught up in the recent market weakness along with the more cyclical industrials. It remains at a material discount to peers trading on 16.1x FY22 earnings and offering 3.5% FY22 yield. 

  • Good performance during the year: Confirmation that trading during H2 ’21 remained strong despite cost input pressures, supply chain issues and freight cost inflation is testament to the resilience of the business. Revenue growth is indicated at c. 30% on constant currency basis, ZC estimate 25.4% reported growth, and this is in line with management’s target of doubling revenue by FY25. Cost input pressures relating to the supply chain, freight and commodity costs have, to a degree, been offset by price increases on legacy products as well as on-going strategic initiatives. The new factory being fully operational is a major positive for the business moving forward.     
  • Changes to forecasts: Today’s statement indicates trading is in line with this. We take the opportunity to reduce our PAT estimate from £32.3m to £31.4m, a c.2.8% reduction. We flow this through into FY22 and FY23, with PBT estimates reducing by 5-6%. Net debt at c. £51.0m is higher than our £40.3m estimate as Strix Group has invested in inventory to manage commodity price inflation but remains low at less than 1.5x EBITDA. Full details of changes to forecasts can be seen on page 2.
  • Controls: Positive volume growth is welcome, and we expect the division to have traded at least in line with FY19 levels post the 7% decline in FY20.
  • Water: LAICA will have made a material difference to the scale of the business, but progress has been made in other areas. The HaloPure technology continues to advance, and 14 contracts have been secured, ahead of the ten targeted. In-sourcing of production moving forward will improve margin.
  • Appliances: Moving forward, a great deal is expected from this division as new products come on stream. The Aurora, released late last year, is beginning to show commercial success and is ahead of budget.
  • Valuation: Strix Group current valuation of 16.1x FY22 earnings undervalues a business that has performed so strongly over the last three years. The FY22 yield of 3.5% offers support at these levels.
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