Sausage skin manufacturer Devro (DVO) is in demand as strong interims confirm improved volume trends. Combined with a positive update on major projects to drive growth in 2016 and beyond, this sees shares in the Scotland-headquartered company sizzle up 4.8% to 313.13p.
Click here to digest half-time figures to June from Devro, one of the globe's leading manufacturers of high-quality collagen products used by sausage, salami and ham producers. These reveal 5% growth in sales volumes and revenue in constant currency, driven by strong demand in China, Japan and South East Asia and steady growth in North America. This offsets softness in Russia and Latin America.
CEO Peter Page reports 11% growth in operating profit to £15.6 million, with adjusted pre-tax profit up 10% year-on-year to £14.7 million. Besides a strong volume turn, the numbers are boosted by savings following a restructuring in Scotland and Australia.
Investor excitement surrounds a major £100 million combined investment to establish new plants in the USA and China. One-off costs associated with these projects are expected to increase, reflecting the start of US commissioning and training costs as well as the build-up of a team for the new factory in China, though both projects are on track to kick-start production in 2016.
Page says recent €12.5 million acquisition (10 Jul) PVI, a Netherlands-based collagen gel products maker focused on the meat processing industry, represents a complementary fit. Strengthening Devro's European presence, the business brings access to an innovative and developing product portfolio and will boost its collagen science know-how.
A year ago, we highlighted the recovery potential of Devro at 248.4p and the running Play of the Week now trades 26% north of our original entry price. We reminded readers the company offers a compelling play on growing global demand for collagen casings linked to higher protein consumption globally. In emerging markets, notably China, urbanisation is driving increased affluence and the newly-wealthy have a taste for Western diets.