Investors give smoke detector manufacturer Sprue Aegis (SPRP:AIM) the benefit of the doubt as record results are mixed with a cloudy outlook.
Its share price moves up 10.7% to 335p as Sprue pre-announces operating profit for the six months to 30 June tripled to a better-than-expected £9 million.
Sprue’s profits are being driven by orders in France ahead of a deadline for private landlords to install smoke detectors.
The deadline in France was extended from 15 March 2015 to 31 December 2015, which means the business is still benefiting from increased sales in the country.
Its order book in France, however, has fallen and it’s unclear what sales and profits look like under more ‘normal’ market conditions.
Replacement cycles on detectors are generally considered to be around 10 years.
Analysts at Westhouse Securities, Sprue Aegis’s house broker, argue a pick-up in demand from Germany could sustain profit momentum, though they admit the timing is uncertain.
A decision by Sprue to hire additional engineers, which are in effect part-funded by new UK rules to promote intellectual property development, is also seen as a positive by Westhouse analyst Robert Sanders.
‘While both the fall-off in sales in France and the pick-up in sales in Germany remain uncertain, we view the investment in additional engineering resource positively,’ writes Sanders.
Sprue is valued at £147 million and had £29 million of cash on its balance sheet at the half-year stage with no debt, according to management. Working capital investments, dividend payments and a reduction in second half profit will mean the figure won’t increase much in the second half.
Profit-before-tax (PBT) in the second half of Sprue’s financial year is estimated by Westhouse at around £2.8 million (full year: £12 million) versus £7.5 million the year before (full year: £9.7 million), a decline of more than a half.
Next year, 2016 PBT is forecast at £9.2 million, while 2017 PBT is estimated to hit £12.4 million, according to Westhouse.