A stronger second half made up the first half profit shortfall for kettle components manufacturer Strix Group (LON: KETL) and the new Chinese factory is on course to be fully up and running in August. New products outside of the kettle sector are increasing the potential market for AIM-quoted Strix.
In 2020, revenues were 2% lower at £95.3m, while underlying pre-tax profit was 2% ahead at £30.9m. That profit does include a small contribution from last autumn’s acquisition of Laica.
Strix has edged up its share of the kettle controls market to 55% and it has three-quarters of the regulated segment.
Total dividends were raised by 2% to 7.85p a share. That is covered 1.8 times by earnings.
There was £31.2m of cash generated from operating activities. Net debt rose to £37.2m at the end of 2020, mainly due to acquisitions and the investment in the new factory in China.
Strix has already spent £14.8m on the new factory and a further £5.2m will be spent this year. This is on budget. The site has a 50-year lease and provides capacity to cope with further growth in demand.
This new facility will allow two existing factories to be closed and some of the production from the HaloPure facility to be moved to the new site.
Capital spending should reduce after the factory is completed and cash generated will go towards reducing the debt.
There are new kettle control products, but the more rapid growth will come from other areas. The water filtration sector is a global market opportunity at £3bn. Strix has strong positions in the UK and Italian markets and the other markets are barely exploited, as yet.
HaloPure has signed a contract with livestock company Chia Tai Group in China, which will use its water purification technology. The Aqua Optima brand has been launched in North America. Water filtration generated revenues of £22m in 2020 and management believes these could more than treble over five years.
The acquisition of Laica has expanded the appliances division and that also has the potential to more than treble revenues by 2025. The product range has been expanded from hot water on demand appliances to baby care, food preparation and health products.
If the other divisions grow as management foresees, then kettle controls will contribute less than 50% of revenues by 2025.
Strix has shown its robustness. There are still concerns about commodity prices and shipping costs. The investment in the new factory and product development will pay off in the medium-term.
At 280p, Strix is trading on 18 times prospective 2021 earnings. That would appear high if the company were still dependent on the more mature kettle controls market for growth. The new products in water filtration and other appliances provide significant growth prospects.
The dividend, currently providing a yield of 2.8%, will grow steadily. Octopus and Schroders have been adding to their shareholdings. Strix is an attractive long-term investment.