Strix Group plc (LON:KETL) is the topic of conversation when Zeus Capital’s Research Director Andy Hanson caught up with DirectorsTalk for an exclusive interview.
Q1: Strix Group have released a full year trading update for 2021, it reads relatively well. What are your thoughts on the update?
A1: It does, and I think you need to put the performance in ‘21 into what they did in ‘20 when everyone was impacted by the pandemic and the first series of lockdown. A lot of companies missed forecasts, had to get waivers from the banks, came under real pressure, whereas they dealt with it relatively seamlessly and profits last year were in line with FY19.
So, they came to a very difficult year in a much better position than most companies and they’ve traded pretty well during FY21 as well. They did an acquisition late in 2020, which is driven really strong revenue growth so you’ve got 25/30% revenue growth in the year and they’ve come out and they confirmed that they will meet consensus after tax profits.
So, again, looking at the headwinds that they’ve been in, in FY21, in terms of commodity costs etc., they have done really well.
Q2: Just looking forward then into FY22, how do you view the outlook?
A2: All parts of their business in ‘21 seem to be doing pretty well.
The controls part, they state that it’s grown volumes, the water part of their business is being helped by the acquisition that they’ve done and also the sales they’re doing on the new technology they’ve got into China, into the farming community there, and then also appliances. They’ve got new appliances coming on stream that had been delayed because of the pandemic and we expect further new releases going forward. So, I think it’s all pretty rosy on that side of things.
You have to caveat that a little bit with what’s going on commodity costs etc. which is definitely a headwind. Historically they’ve managed to put price rises through on legacy products, and we can see them doing that again.
So, I’m still pretty positive for FY22, particularly as they reaffirm their target of doubling revenue by FY25.
Q3: Now, the share price performance has been a little bit weak just lately. Do you think there’s a reason for that?
A3: I think markets have been a little bit wobbly from the start of the year, and I think that’s due to what we’re hearing on interest rates. A lot of the company’s peers on the market are quite cyclical so they’re very interest-rate sensitive.
I think the company, to a degree, have been caught up in that sell off as the market sees sector rotation and I think that’s a bit unfair for the company. I think we’ll see through FY22 that it’s not as cyclical as a lot of these other businesses, their core controls business in the kettle market it doesn’t fluctuate wildly from year to year.
So, I don’t think there’s fundamental reason why they come off, I think it is just a sector wide short term issue, it’s been weak but I think as we get strong earnings this year, it’ll bounce back a little.
Q4: Finally, how does Strix Group compare to its peers on valuation?
A4: It looks really cheap, trading on 16 times current year earnings, it yields 3.5% which is also ahead of the peer group and that feeds into my view on the share price recovering quite a lot during the year.
