Strix Group PLC

Strix Group PLC (KETL) is an Isle of Man, United Kingdom-headquartered world leader in kettle safety controls, which is engaged in designing, manufacturing and supplying kettle safety controls and other components and devices involving water filtration, steam management, and water heating and temperature control. The company estimates that its products are used in more than 100 countries over 1 billion times per day by consumers, having sold over 1.9 billion units. The group trades on the Alternative Investment Market of the London Stock Exchange.

Financial Highlights (H1 2019, in £m)
 
(Source: Company Filings)

Despite continued challenges presented by the macro-economic environment, revenue grew by 2.5% to £43.9 million (H1 2018: £42.9 million) with a constant currency increase of around 1%, reflecting product mix changes. As a result of solid trading results across the company, reported gross profit increased by 2.5% to £16.7 million (H1 2018: £16.3 million), with gross profit margin maintained at around 38%. Due to strategic project costs relating to the HaloSource acquisition and share-based payment charges, reported EBITDA declined to £10.9 million (H1 2018: £12.4 million), while the company generated an adjusted EBITDA of £14.9 million, an increase of 0.7% (H1 2018: £14.8 million). Reported EBITDA margin decreased to 24.7% (H1 2018: 28.9%) and adjusted EBITDA margin declined to 33.9% (H1 2018: 34.5%). Primarily due to the £1.6 million increase in exceptional costs, reported operating profit was lower by 14.8% to £8.1 million (H1 2018: £9.6 million), while adjusted operating profit increased by 2.1% to £12.2 million (H1 2018: £11.9 million). Reported profit before tax was £7.5 million (H1 2018: £8.6 million) and as lower interest charges was incurred due to an improved leverage ratio and a lower outstanding facility balance, adjusted profit before tax increased by 4.6% to £11.5 million (H1 2018: £11.0 million). Reported profit after tax was £6.9 million (H1 2018: £8.3 million), representing an increase of £1.6 million in exceptional costs, and adjusted profit after tax was £10.9 million, an increase of 2.6% on the prior period (H1 2018: £10.5 million). Due to working capital movements and the decrease in reported operating profit, net cash generated from operating activities declined to £10.9 million (H1 2018: £15.2 million), while net debt increased since 31 December 2018 to £33.4 million (2018: £27.5 million).  Adjusted diluted earnings per share rose by 1.8% to 5.4p and the group declared an interim dividend of 2.6p (H1 2018: 2.3p).

Share Price Commentary
 
Daily Chart as at 19-September-19, before the market closed (Source: Thomson Reuters)

On 19 September 2019, at the time of writing the report (at 09:16 am GMT, before the market closed), KETL stock was trading at GBX 169.7, up by 0.41 per cent against the previous day closing price. Stock's 52 weeks High and Low is GBX 182.00/GBX 127.12. The company’s stock beta was 1.13, reflecting more volatility as compared to the benchmark index. The outstanding market capitalisation was around £322.30 million, with a dividend yield of 4.31 per cent.

Conclusion
Global political issues such as Brexit and USA-China trade dispute have a disruptive impact on supply chains and market growth has slowed in line with weaker global economic growth, which might lead to the market becoming more price-sensitive. If a significant shift in market pricing occurs, several low-cost competitors may attempt to increase their market share by undercutting the group on pricing, as the group operates in a competitive industry. Without necessarily allowing an increase in the sales price of products, a significant change in the cost of certain raw materials can impact profitability as the group is exposed to fluctuations in the prices of some raw materials.

Based on the headwinds faced by the group, we have given a "WATCH" recommendation at the closing price of GBX 169.20 (as on 18 September 2019), while we look for any upcoming catalysts in the near term.

Warpaint London PLC

Warpaint London PLC (W7L) is a Buckinghamshire, United Kingdom-headquartered colour cosmetics business, with high-quality cosmetics at affordable prices being sold into high street retailers and independent beauty shops across the UK, Europe, Australia and the US. The group consists of two divisions, namely close-out and own-brand. With a focus on the 16-30 age range, the group operates its flagship brand W7, which contains over 500 items.

Financial Highlights (H1 2019, in £m)
As Group brands sales were £15.6 million in the first half of the year (H1 2018: £15.4 million) and close-out division had sales of £3.3 million (H1 2018: £3.0 million), total revenue grew over the period by 2.9% from £18.4 million in H1 2018 to £18.9 million in H1 2019. International Group revenue rose by 7.8% to £11.1 million (H1 2018: £10.3 million) and on a like for like basis, W7 brand delivered export sales growth year on year of 12.4% in the EU and 45.4% in the US. Gross profit reduced over the year to £6.6m from £6.7m in H1 2018, while due to the larger proportion of lower margin US sales and the geographic mix of sales, gross margin declined to 34.9% for the half-year compared to 36.5% in H1 2018. Though excluding the business of the company in the US, gross margin rose to 37.8% (H1 2018: 36.4%). As total operating expenses increased by £1.3 million from H1 2018 to H1 2019, adjusted profit from operations declined to £1.2 million in H1 2019 (H1 2018: £2.6 million) and a statutory operating loss of £57k was recorded during the period, against a profit of £1.37m in H1 2018. Statutory loss before tax was £0.2 million (H1 2018 profit before tax of £1.3 million), while adjusted earnings per share were 1.37p in H1 2019 (2.94p in H1 2018) and statutory loss per share was 0.22p in H1 2019 (profit per share of 1.36p in H1 2018). Net cash balance declined by £1.9 million to £2.7 million as at 30 June 2019 (30 June 2018 £4.6 million), and net cash flow generated from operating activities was recorded at £1.3 million compared to £2.9 million in H1 2018.

Share Price Commentary

Daily Chart as at 19-September-19, before the market closed (Source: Thomson Reuters)

On 19 September 2019, at the time of writing the report (at 11:08 am GMT, before the market closed), W7L stock was trading at GBX 50.50 and remained same against the previous day closing price. Stock's 52 weeks High and Low is GBX 274.80/GBX 48.25. The company’s stock beta was 3.51, reflecting more volatility as compared to the benchmark index. The outstanding market capitalisation was around £38.86 million, with a dividend yield of 8.71 per cent.

Conclusion
The European economy is in the midst of a slowdown or moving towards a recession according to some analysts, and being in a discretionary industry, the market for the products of the group would be highly affected, which does not augur well for the group. A significant value of sales is generated from Spain, and any economic impact there would affect the company. Until the whole process of the UK exiting Europe has concluded and possibly thereafter, a period of economic and political uncertainty is likely to persist, which can impact customers on the UK High Street.

Based on the headwinds faced by the group, we have given a "WATCH" recommendation at the closing price of GBX 50.50 (as on 18 September 2019), while we look for any upcoming catalysts in the near term.

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