Strix Group Plc (LON:KETL) has announced a maiden set of FY results post listing in August 2017. Revenue of £91.3m was broadly in-line with the ZC forecast of £92.6m, reflecting 2.9% YoY growth. A positive mix effect, as regulated markets grew more strongly than expected, meant the gross profit margin increased 120bps YoY to 40.7%, this was 90bps ahead of the ZC 39.8% forecast. As a result, gross profit of £37.2m was marginally ahead of the £36.9m forecast. Net debt of £45.9m is slightly lower than the forecast that was reduced by c.£10.0m to £48.0m at the time of the FY17 trading update (22nd January). Net debt will continue to decline with net debt to adj. EBITDA at year end of 1.3x falling to just 0.8x in FY18. On fully diluted earnings, incorporating a 19% tax rate, the shares trade on 11.2x FY18 earnings and yield a prospective 5.4%. A compelling valuation for a global leader with c.38% market share.
Strong performance in FY17 following on from exceptional market share growth in FY16. Strix performed in-line with the wider market during the year, importantly maintaining its global market share of 38% (c.50% by value) with all segments showing a stable position. With the strong market share gains in 2016 in China and Less Regulated markets, there was a risk that competitors would become more aggressive to win back market share. That this has not happened underpins the view that the structural changes underway in the market will benefit Strix and its on-going strategy will support its market leading position.
Mix benefit as regulated markets outperformed expectations. Regulated markets remained strong having grown volumes by c.5% in FY17 driven by Western Europe (we expected a more benign 1% growth in FY17) which led to stronger margins for the group. Unregulated markets grew c.12%, with Strix seeing volumes increase by 16% as the new U9 came to market. Offsetting this, the China market declined c.6% albeit having grown some 11.4% in FY16, with Strix importantly maintaining market share at c.50%.
Current trading and confident outlook. Trading during H217 was strong and encouragingly this has continued into the early part of FY18. Importantly, the one material difference is that the Chinese market has been more buoyant. Year-end run rates in all three markets have continued, providing a strong start to the year and a platform to execute FY growth expectations.
Attractive valuation. Trading on a FY18 P/E of 11.2x falling to 10.4x in FY19, or c.9.4x and 8.7x using an actual tax rate, Strix looks very good value. With strong FCF generation (FY18 FCF yield c.9.4%), the business trades on an FY18 EV/EBITDA of 7.6x falling to 6.9x, with a prospective yield of 5.4% for FY1.
