Analyst reaction: Sausage skin maker Devro heats up divi in 2021 results

Moodiesburn-based manufacturer Devro has been praised by analysts for “strong strategic and financial progress” after revealing its full-year results for 2021, as it eyes opportunities outside its core market of sausage skin and food ­casings.

The London-listed firm said that for the year to December 31, pre-tax profit amounted to £36.9 million, up from the restated £34m in 2020, on an underlying basis, while operating profit came in at £42m, an increase from £40.8m – with operating profit margin growing to 16.6 per cent from 16.5 per cent.

That followed Devro saying in January that it was expecting 2021 operating profit performance to be in line with expectations, amid sizzling revenue growth.

Revenue in fact came in at £252.4m, a step up from the £247.6m achieved in 2020, and on a constant currency basis it was up 5.5 per cent, reflecting second-half growth of 7.6 per cent.

The firm has reported a 4.9 per cent jump in the volume of edible collagen casings. Picture: Scott Olson/Getty Images.

The volume of edible collagen casings rose 4.9 per cent, with emerging markets up 7.1 per cent, driven by Latin America and South-east Asia, “reflecting positive momentum in our targeted growth agenda”.

Mature markets, for their part, saw growth of 3.7 per cent, driven by 20 per cent growth in North America due in part to increased appetite in the snacking category.

Overall, Devro cited “good customer wins in targeted growth markets”, as well as increased investment in new-product development, with new applications for collagen and alternative technologies, and said the transfer of production lines from Bellshill to its Czech site completed “on time, and on budget”.

The business also flagged a proposed final dividend of 6.5p, and total dividend of 9.3p, up 3.3 per cent on the prior year, marking the first increase since 2018.

Chief executive Rutger Helbing said: "We made significant strategic and financial progress in the year. Our improved performance was achieved despite ongoing challenging market conditions, including inflationary headwinds. We are also pleased with our free cash flow performance, which provides us with increasing optionality to invest in new products, to increase manufacturing capacity and to grow the dividend.

"The group has started the year well, and, despite ongoing macro-economic headwinds including inflationary pressures and based on current exchange rates, we expect to make good progress in 2022."

Progress

Shore Capital Markets analysts Darren Shirley and Clive Black – who in November said Devro had “moved out of the doldrums and is evolving into a multi-year growth story” – said the results “confirm a year of strong strategic and financial progress”, adding that basic earnings per share of 18.1p, a jump from 15.8p in 2020, was “comfortably” ahead of expectations.

They added that Devro is a “very well-invested” business, with capital expenditure of £314m over the past decade, and boasting “industry-leading facilities and building momentum across both mature and emerging markets”. The analyst duo also said: “We look for Devro to generate sustained earning growth over the medium term, which we fully expect to support ratings expansion over time. We reiterate our ‘buy’ stance.

Also reiterating “buy” was Damian McNeela of Numis, who said: “We believe that Devro is well-positioned to build on the growth momentum achieved in [2021] and its strong, sustainable cash generation is creating flexibility to increasingly explore growth opportunities outside of its core collagen casings market.”

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