With FY22 now firmly in the rear-view mirror, Strix is looking forward with more optimism. China is re-opening for business following several COVID-related lockdowns and green shoots have begun to appear. Sales to OEMs have seen a substantial improvement in run-rates during the first two months of FY23 and, while a swallow does not make a summer, we see positive signs, not least the possibility that a recession may well be averted in Western economies. A combination of product launches, the acquisition of the high margin Billi and a cross fertilisation of sales between the consumer brands augurs well for FY23.
We expect FY23 to represent an inflection point for the Kettle Controls business. In the YTD, green shoots have appeared, with sales to OEMs rising 18% versus Q4 (which represented a low point in FY22). As COVID-related restrictions have been lifted in China, we expect revenues to improve further as bottlenecks are removed and trading returns to normal patterns. A combination of product launches within Water/Appliances/Billi, new listings (online and retail), and a cross-fertilisation of sales within the wider consumer areas is expected to result in strong growth in revenues and profitability.
Our comparative valuation models suggest that Strix Group is trading on the lowest FY1 EV/EBITDA and PER multiples within its peer group. Our fair value estimate of 216p/share is backed by a conservative DCF model and represents a significant uplift on the current share price. Even following the dividend cut, the FY1 yield amounts to 7.1%, with dividend growth slowing to reflect a desire to reduce indebtedness (we estimate the net debt/EBITDA ratio declining to 1.8x in FY23).
