Strix – the world’s largest kettle safety controls supplier – released preliminary FY2018 results in line with our own, and market, expectations. Expansion plans, including the new Chinese factory and growth outside kettle controls, notably Aqua Optima, appear on track. In 2019, dividends are still planned to increase by 10.0% to 7.7p per share, which reflects management confidence.
Strix’s 2018 results reported a 2.7% sales increase (+4.5% constant currency), a 3.5% gain in adjusted EBITDA, 3.2% higher pre-tax profit and a full year 7.0p per share dividend. Going forward, dividends are planned to rise in line with underlying earnings growth with a useful 10.0% increase to 7.7p committed to for 2019. Net debt fell by £18m and closed the year at £27.5m, consistent with the company’s 22nd January 2019 trading update, and was relatively modest at only around 0.8x last year’s EBITDA.
The 2018 results augur well for 2019 about which the company already expressed confidence. Importantly, volumes remain strong having increased by 7.9% last year and, on a constant currency basis, sales growth was faster than headline at 4.5%. Strix maintained 38% share of the global kettle controls market while making some important gains in both the regulated (notably North America) and less regulated markets (where Africa and South East Asia performed well). China should return to growth this year.
Strix completed its £1m acquisition of certain HaloSource assets on 7th March 2019. These included the HaloPure division and the Astrea product. The company reiterates the benefits of some key technologies and research & development skills in the water filtration market. The HaloSource assets are expected to support Aqua Optima’s overall growth as well as entrenching the group’s important USA foothold.
In our view, the investment case for Strix remains positive. The company aligns itself to increased demand for healthy products through the association of kettles with tea and pure water with hydration. Furthermore, the benefits of strong finances tend to be confirmed by its ability to acquire well strategically – as in the case of HaloSource – while its core business benefits from a rigorous approach to IP protection.
Strix’s key financials are summarised in the table below. Based on yesterday’s close the shares continue to trade on a single digit EV/EBITDA multiple while boasting an undemanding 11.6x P/E ratio and a very generous 4.6% prospective dividend yield.