I added a base position in Sprue Aegis today. The company issued it’s half year figures in mid September and the price has drifted down a little since then by about 4% since that time.
What I like about the business.
Well it’s a business partly driven by legislative requirements in a number of European countries; smoke alarms and carbon monoxide alarms. Looking at the report and presentation it is clear that this year’s figures have been given a non-reoccurring boost by the legislative requirement in France. However stripping that back, it still looks like there is an attractive business moving into 2016.
Things I specifically like:
No debt and cash position of £29m (attractive against a market cap of £144m)
Good cash flow
Price to FCF 7.0
Piotroski F-Score of 7
Current Ratio 2.0
Operating Margin 14-16%
Very attractive Stockopedia stock rank score of 95, a fact which gives me some degree of reassurance with my decision to make an addition to my portfolio.
Note the above figures are from Stockopedia
In terms of the narrative looking forward:
Sprue still has a reasonable order book for France extending into early H1 2016 which provides good visibility of H2 2015 revenue. Germany's 10 year replacement market is about to recommence and two additional states with around 10m homes will require smoke alarms to be fitted by the end of 2017 which is expected to provide further significant growth opportunities in 2016 and beyond.
The implementation of full scale production of the SONA range of products before 31 December 2015 is expected to provide significant sales growth opportunities for UK Trade in 2016 based on the positive customer feedback received to date.
We are pleased that the Nano-905 is now being fitted into finished carbon monoxide detectors offering enhanced performance in 2016.
Given the adverse impact of foreign exchange rates against Sterling on sales and on gross margin compared to H1 2014, the Group is reviewing customer selling prices.
The Board reconfirms that the Company will continue to pursue its progressive dividend policy. Subject to strict hurdle criteria, the Board will seek to identify potential acquisition opportunities to strengthen the Group's strategic and market position and drive long term shareholder value.
Subject to no significant net adverse foreign exchange rate movements between Sterling and each of the Euro and the US Dollar, the Group is on track to deliver full year results in line with market expectations.
Note: as ever, this is just a log of my thoughts for making a purchase of a stock it is in no way a recommendation or tip please see disclaimer page.
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