Sausage skin maker Devro's progress praised as trading sizzles

Devro "has moved out of the doldrums and is evolving into a multi-year growth story,” according to analysts – after the maker of sausage skins and food ­casings cheered third-quarter trading giving cause for optimism, despite inflationary pressure.

The Moodiesburn-based firm in a trading update spanning June 30 to October 31 cited “encouraging” trading, with constant currency revenue growth above the first half’s, “reflecting the successful execution of our growth strategy delivering volume growth, higher prices and improved mix”. It comes after the company in July upped its dividend for the first time in four years after seeing first-half profits warm up.

Additionally, Devro has now cited a good performance by mature markets, with continued growth in North America and “improved sequential trends” in Continental Europe, the UK and Ireland, while in emerging markets, Latin America and the Middle East and Africa fared particularly well.

'As we look forward to 2022 we are positive about the outlook but remain alert to global supply chain challenges,' says the firm. Picture: Michael Dodge/Getty Images.

The group added that it is experiencing inflationary pressure, but this is being mitigated through pricing action and tight cost-management, while cash-generation remains robust, but the impact of strengthening foreign exchange headwinds is expected to translate into adverse year-on-year impact of about £3 million on full-year operating profit.

Devro said the board's expectations for the full year 2021 remain unchanged. “As we look forward to 2022 we are positive about the outlook but remain alert to global supply chain challenges, inflation and further foreign exchange headwinds,” it also stated.

Analyst Damian McNeela of Numis said he and his team see “further evidence that Devro's strategic growth strategy is delivering market share gains in key markets and believe that the company is well-placed to build on this performance”.

Also commenting were analysts Darren Shirley and Clive Black of Shore Capital Markets, who said: “We have growing confidence that Devro has moved out of the doldrums and is evolving into a multi-year growth story that should support ongoing ratings expansion over time.”

They also cited the Scottish firm’s “decade-long journey” that has seen all of its global manufacturing facilities upgraded or rebuilt, the creation of a “truly global” supply chain, and more formularised business practices and strategy.

“We believe that the broad-based nature of Devro’s building sales and volume momentum is evidence that the hard work is gaining increasing traction in the market and with customers,” they also stated.

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