Interims Confirm Growth Optimism

Strix announced interim results this morning.  Net revenue advanced by 1.5% to £42.9m and adjusted EBITDA by a faster 4.3% as gross and EBITDA margins both expanded: to 37.9% (37.2%) and 34.5% (33.6%) respectively.  Pre-tax profit to fall by 1.9% to £11.0m but the cash position remains strong.  Net debt fell by £8.0m to £37.9m as net cash from operations was positive by £15.2m: a 97% conversion rate.

 

Kettle controls revenue was slightly lower in the half year at 1.9%. Global category volume was strong at 6% with China returning to growth and recovering by a similar amount.  Despite global category growth, Strix maintained a 38% world market share in kettle safety controls. Volumes advanced by 7.6% to 36.8m units in the period. In the USA, growth was pleasingly strong at 20%. The new U9 series of controls continued to win new business.  It also drove growth in the less regulated and China market segments.

 

Aqua Optima nearly doubled in size in the first half (+88%) and was close to 9% of group revenue.  Its reach into an additional 2,500 outlets augurs well for future growth and we look forward to seeing the impact of its launch in China in the next six months.

 

We continue to regard the US as an important growth story across both kettle controls and the hot water on demand category. Not only is there substantial per capita volume increase in consumption in tea, but there is also a significant opportunity for meaningful growth in single-serve coffee, illustrated on 30th August when Strix announced a coffee collaboration with a leading US consumer products company.

 

Strix remains well placed to match market expectations for the full year and should enjoy sustained organic sales growth in our view thereafter.  Moreover, its FY2018 12.0x P/E ratio and 4.2% dividend yields appear undemanding.  In our view a 200p fair value - which would imply a 14.3x P/E and a 3.5% - seems realistic as further growth opportunities continue to reveal themselves, as well as offering more than 20% upside.