Sprue Aegis Share Discussion Threads

[3800] 24/1/2017 17:55

thanks for that GHF, I didn't know Westhouse had forcasts for 2018 would you mind sharing what they actually are please?
3800

[glasshalfull] 24/1/2017 16:45

Mas - re. post 1488 ... It's Graham Neary writing Paul's blog today (as Paul's currently in Warsaw).

Clearly Graham is unaware of the CICAM relocation & stocking issues of 2014/15 or the legislative deadline / requirement for French properties to have a smoke detectors. This of course has caused indigestion as sales were ramped up in a short space of time to meet the unprecedented demand.

I agree with the importance of the sentence you've highlighted regarding the adverse currency rates, which have impeded SPRP's progress for a number of years either via the weak Euro in the last few years & continue via the strong dollar. Worthwhile to note that they share the "pain" of strong dollar with their distribution partner 50/50 per supply term agreement last year: -



"Sprue has agreed to share equally the impact of Sterling's depreciation against the US Dollar from a previously fixed rate of GBP/US Dollar 1.62 exchange rate."

While it doesn't solve the issue at least it mitigates somewhat, especially if volumes increase due to the rebate mechanism in place.

I thought the other part of the statement that was worthy of flagging (or highlighting) was the recovery in Germany, with sales +52% on 2015. This suggests that the fireAngel product range powered by Panasonic has been welcomed by customers and augurs well for the retrofit opportunity & also replacement cycle across a number of German states in 2017/18.

I'd previously documented this in post 1318 in Feb 2016 (took a while to check back ;-)

Here's the relevant part: -

The biggie though could be Germany.

With French sales falling away in 2016, the question has always been whether Germany would pick up the slack. To answer this question it is worth providing some background.

North Rhine is required to ensure mandatory retrofitting of smoke alarms in all residences by 31.12.2016. This is the largest German State with 22% of the entire population (18m) & the difference here in comparison to France is the requirement for an alarm in EACH bedroom of a property alongside an alarm in all children's rooms. Also a requirement to install an alarm in the hallway of each property. Whereas, in France the requirement is only for 1 alarm per floor (think this translates to 1.6 alarms per property).

Alongside the legislative requirement for North Rhine, we have Bavaria (12m residents) with a legislative requirement in similar terms by 31.12.2017. So, 30 million residents (37% of the German population) encompassing 10 million homes...with the 10m homes estimated to require 3/4 alarms per household over the next couple of years.

Therefore, this provides an expectation for double or triple the amount of smoke alarms per property in comparison to that experienced in France.

In addition, the Germans are looking for higher spec products which command greater margins and of course this plays directly into Sprue's hands with their extensive product range & market leading position in the German market. In France the demand appeared in a very short timescale as the French population played catch-up on legislation which was enacted 2/3 years earlier. This again played to Sprue's strength as they were the only company with ability to fill this unprecedented short-term demand. Germany in comparison is likely to play out with orders well ahead of the curve, so with the 31.12.2016 requirement there's the possibility that they could see a ramp-up in demand anytime soon.

----

On the back of all this Westhouse have provided an update with 250p price target. Some snippets: -

"...We are most encouraged by the 52% increase in sales into Germany in 2016 (vs 2015), which was primarily due to the launch of new FireAngel products (with Panasonic batteries) in H2 2016. As we have argued previously, we believe that there is a similar- sized smoke alarm market opportunity in Germany in the next two/three years, as there was in France in 2014/15. If sustained the current euro/sterling exchange rate would, undoubtedly, be an additional positive."

and

"...For FY2016 we have increased our adj. PBT forecast to £2.2m from £2.1m and adj. EPS to 4.4p from 4.2p on sales of £57.1m vs £58.0m. We maintain our dividend forecast of 8p.

At this stage, we have made no changes to our 2017 and 2018 forecasts. We continue to believe that we have taken a conservative stance on Sprue’s likely share of the German market and sales growth in UK Retail and UK Trade. We maintain our DCF- derived target price at 250p which still conservatively uses an 11% WACC and 2% long- term growth rate.

We believe that the current share price is underpinned by our forecast of a maintained 8p dividend for 2016 which implies a 3.2% dividend yield at our 250p target price."

---

Hope this assists.

Kind regards,
GHF

[cockerhoop] 24/1/2017 15:52

It's pretty clear that the new manufacturing agreement that came into place in early 2016 has changed the FX profile of the company, the plunging £ since then is not at all welcome for SPRP.

[masurenguy] 24/1/2017 15:23

Well 3800 - we can only wait and see. Hopefully that will not be the case !

[3800] 24/1/2017 15:08

hi Masurenguy,
your highlighted sentence regarding currency rates makes the cynic in me wonder if we arn't being prepared for the next earnings downgrade, lets hope not.
3800

[masurenguy] 24/1/2017 14:48

Paul Scott's view on the Trading Update.

This is a mixed update which describes the company working through various challenges, as it tries to get back to normal performance levels. "Sales are expected to be approximately £57.1m (2015: £88.3m) and the operating profit* (post a £0.2m restructuring charge) is expected to be approximately £2.1m (2015: £12.8m). The Group delivered an improved performance in the second half with an estimated H2 2016 operating profit* of £3.0m (H1 2016: operating loss of £0.9m before share based payments charge)."

That sounds like a reasonable H2 result, in the circumstances, but note that it is before share based payments of £0.6m (which increased slightly, compared to 2015). If paying out share awards was irrelevant to the operating performance of a company, it wouldn't pay them, I think - so share awards should always be included in operating numbers like this. There is nothing special about these annual payments which means that external shareholders can simply ignore them. So I would argue that a more meaningful operating profit figure would be £2.4 million in H2, up from a £1.4 million loss in H1.

My opinion: Looking forward, I'd like to be bullish on the company's recovery prospects. What I really need to understand is how overstocking in France led to such a large sales collapse there - was management at fault? Were lessons learned? Perhaps the annual report will help to explain. Cash is now £14m, leaving the enterprise value (market cap minus cash) at £65m. Further business recovery is due, and will be needed to justify this valuation.

[masurenguy] 24/1/2017 07:49

RNS Number : 8912U
24 January 2017
Sprue Aegis plc

Trading update

Sprue, one of Europe's leading home safety products suppliers, today announces a trading update ahead of the release of its audited final results for the year ended 31 December 2016, which are expected to be in line with market expectations. The figures set out in this announcement are subject to audit.

Sales are expected to be approximately £57.1m (2015: £88.3m) and the operating profit* (post a £0.2m restructuring charge) is expected to be approximately £2.1m (2015: £12.8m). The Group delivered an improved performance in the second half with an estimated H2 2016 operating profit* of £3.0m (H1 2016: operating loss of £0.9m before share based payments charge). The reduction in sales was mainly driven by significantly lower demand in France. However, sales into Germany recovered strongly in 2016, up 52% on 2015, primarily underpinned by the launch of new FireAngel products in H2 2016. Due to the phased introduction of smoke alarm regulation in further states in Germany and the timing of the commencement of product replacement cycles, the Board expects the German market will continue to provide significant growth opportunities for the Group.

Since the EU referendum, the Group has seen significant product cost inflation due to the weakness of Sterling against the US Dollar, which was only partially offset by the strength of the Euro against Sterling. FireAngel product returns and FireAngel warranty costs in 2016 were in line with the Board's expectations. Sprue expensed a core level of FireAngel warranty costs equivalent to approximately 1.0% of expected 2016 sales and released part of the FireAngel warranty provision to offset warranty expense above that core level. In 2016, the Board increased the stock provision by £0.5m to £0.7m (31 December 2015: £0.2m), primarily in relation to French stock as previously announced. Net of provisions, stock at 31 December 2016 had reduced by 15% to approximately £13.3m (2015: £15.6m).

The Company's balance sheet remains strong with £14.3m of cash at the year end (2015: £22.4m) and no debt (2015: £nil). The Company expects to announce its final results for the year ended 31 December 2016 in late March 2017.

Graham Whitworth, Executive Chairman of Sprue, commented:"We are pleased to report good progress across the Group. The team worked effectively to address the key challenges which is reflected in the stronger performance in H2 2016. The functionality of home safety products continues to evolve and our R&D team is working to ensure we maintain our "best in class" reputation. We are well placed to capitalise on emerging opportunities including sales of connected home products."

*Operating profit in 2016 of £2.1m is stated after a £0.2m restructuring charge (2015: £nil) and before share based payments charge of £0.6m (2015: operating profit of £12.8m is stated before exceptional warranty charge of £5.5m and share based payments charge of £0.5m)

[3800] 13/1/2017 15:59

In the last 2 years the trading updates have been as of next week,there hasn't been any "slippage" of the share price like last year so I'm just hoping this years is good news not bad.
3800

[masurenguy] 16/12/2016 09:20

Quietly making good progress here with the shareprice rising by 12.5% over the past 2 weeks !

[the big fella] 14/12/2016 13:13

Indeed. Still think Jarden may take another look here.

[glaws2] 14/12/2016 12:49

I think we are awaiting a trading update - would be nice to return to the days of a December statement saying thy are ahead.

[the big fella] 14/12/2016 12:34

All very quiet here. GW also been mysteriously quiet lately. Hmmmm

[the big fella] 12/12/2016 09:56

Not been a post in a while so I thought I would throw something into the mix. Given the plummet of sterling against the dollar there have been a number of mid tier GBP companies subject to M&A. In the last month 3 of my holdings have had bids. Given the past offer by Jarden, and that Sprue's share price is half of it's peak, favourable exchange rates may tempt Jarden to come back. At what price would you be tempted?

[pj 1] 09/11/2016 08:44

Yes same here. If you pro rata my holdings and watch list up then 95% of small caps are down >4%

[harrogate] 09/11/2016 08:42

Indeed it is but my small caps are all red this morning despite very small FTSE fall. Suspect they will come back over the course of the day if FTSE stays as it is.

[the big fella] 09/11/2016 08:38

Surely £ rising vs USd and falling against euro is perfect for us?

[masurenguy] 01/11/2016 08:01

Very positive update !

[glaws2] 01/11/2016 07:53

Plus positive France & Germany updates

[petewy] 01/11/2016 07:48

more comeback?
LAUNCH OF NEW WI-SAFE CONNECT PRODUCT RANGE

Sprue recently launched its new Wi-Safe Connect product range at Europe's largest safety and security show in Essen, Germany to positive customer feedback. Wi-Safe Connect is an innovative and intelligent, cloud-based alarm notification and network management system which utilises the Intamac source code acquired by the Company in September 2016.

[glasshalfull] 23/9/2016 15:23

Courtesy to let you know that Stockdale have a 250p price target and indicate upside to forecasts as confidence in Sprue's profit recovery increases.

As I previously mentioned, the forecasts have only taken a "conservative" view on Sprue’s likely share of the German market and view the opportunity not dissimilar to the one presented to Sprue in France in 2015.

Interim dividend of 2.5p per share with Stockdale forecasting a maintained 8p div for the year which equates to a 5% yield at the current shareprice, or 3.2% div yield at the 250p target price. Sprue are also forecast to have c. £14m net cash at year end.

In a positive move Stockdale also indicate a rising div payout in 2017 & 2018 to 9p &10p respectively.

Kind regards,
GHF

[glasshalfull] 21/9/2016 09:38

Agree Big Fella....they acquired the area of Intamac required (software / IP) without need for a full acquisition of the company. Looks a shrewd deal to me too.

I've now had the opportunity to speak with the company and encouraged by the positive progress since they were hit with battery & other associated issues. Looking forward to hearing more on their proposition to monetise the Home Connected offering in the near future.

I was encouraged by the growth in UK Trade. Sales +33% in H1 and it now looks like they are gaining significant traction in this large £80m market.

Positive comments on the German order book and as I understand the 2017/18 German retrofitting proposition remains intact.

All in, I'm pleased with recent progress and delighted to have a further nibble of stock thanks to the weakness in the shareprice over recent days.

Kind regards,
GHF

[the big fella] 20/9/2016 16:08

Yesterdays acquisition looks a good long term fit for the business. I suspect the fall yesterday was people viewing it a money going out and no direct earnings in return. But surely better and cheaper to buy something that works rather than spend a lot of time and effort developing something from scratch which may not be in your primary area of expertise. In time this could look like a shrewd piece of business.
As for the numbers there was nothing there that we didn't know already, and it is encouraging to see that Germany is picking up.

[masurenguy] 19/9/2016 07:41

RNS Number : 1354K
Sprue Aegis plc
19 September 2016

Acquisition

Sprue is pleased to announce details of the acquisition of source code and development rights to software developed by Intamac Systems Limited ("Intamac") (the "Intamac Software Acquisition").

On 16 September 2016, for a total consideration of up to £2.8m in cash (excluding VAT) payable as to £1.0m initially, together with £0.45m pre-paid licences paid to Intamac converted into consideration, and the balance over the next 12 months on the achievement of certain agreed milestones, Sprue acquired source code* and development rights to software developed by Intamac to enable its customers to connect and monitor Sprue's whole range of wireless products over the internet.

Using its patent pending technology, Sprue has the ability to use the data it collects from Connected Homes products to not only detect fires, but using an advanced algorithm, to be able to identify properties at elevated risk of experiencing a fire in the future. The Board believes that this is a major development for the Company as it significantly extends Sprue's technical capability and provides an opportunity to sell a wide range of internet-enabled products and services as part of its new Connected Home Strategy with the potential of recurring revenues. In addition, based on expressions of customer interest received already, the Board is optimistic of commencing sales of internet-enabled products in Q4 2016. As part of the transaction, Sprue has hired two of Intamac's senior software development engineers to enable it to operate and maintain the software. Sprue has also contracted with Amazon to host its customers' data on a secure server.

Commenting on the acquisition, Graham Whitworth, Executive Chairman said: "The Intamac Software Acquisition is a critical development for the long term sales potential of the Group. Having our own in-house software opens up the prospect of revenue from new markets, new services and the potential of recurring revenues giving Sprue the ability to connect and monitor a vast installed network of its products over the internet.The Intamac Software Acquisition is for up to a total cash consideration of £2.8m (excluding VAT) and will be funded from the Group's cash reserves."

*acquired under a perpetual royalty-free licence

[davr0s] 25/8/2016 14:33

Bizarre. I can buy at 162 (just have) and can get a sale price of 162.66! Just toggled between the two and it's still the same