Signs of recovery emerging in China
In a challenging period for Strix it has successfully grown both its Appliance and Water Categories, while taking measures to mitigate a slowdown in Kettle Controls. Historically, the Group managed a rapid turnaround in its Kettle Control revenues as discretionary spend rebounds. We think this period will be similar, with Chinese demand picking up in Q3 ‘22 and OEM backlogs set firm into Q1 ’23. Whilst there is undoubtedly pressure on disposable income across the world, a combination of numerous product launches across several platforms, price increases, and a rationalisation of the cost base should limit the pressure on profitability. Nonetheless we have reduced adj. EPS estimates by 12% in FY22 and by 6% in FY23.The stronger H2 bias to trading should result in a recovery of revenues in the remainder of the year, aided by the combination of the price increases, product launches, rationalisation benefits, and the rebound in Chinese demand. The share price currently stands at a lower level than in the depths of the COVID-19 lockdown uncertainty and since 2018. Based on our new estimates we have updated our DCF and several peer group comparison valuation models. The average suggests a fair value of 236p, which stands at a significant premium to the existing share price (+102%).
Strix Group is a holding company. Through its subsidiaries, Co. is engaged in the designing, manufacturing and supply of kettle safety controls and other components and devices involving water heating and temperature control, steam management and water filtration. Co.'s core products are kettle safety controls, which are responsible for disconnecting the power to the heating element when either water has boiled, operated with no water present, or in some products when the kettle is lifted off its base.
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