Sizzling Asian sales help buoy Scottish sausage-skin maker Devro
In a trading update, the Moodiesburn-based group noted that volumes had increased by 4.6 per cent during the opening months of 2021, compared to a year earlier.
Emerging markets were up 15 per cent, led by strong growth in China, south-east Asia and Latin America.
While “mature” markets were flat on the prior year, that marked an improvement on the trends seen in 2020. Japan and North America both delivered strong growth though this was offset by lower demand in the UK and Ireland which had benefitted from elevated retail volumes in March 2020 as the pandemic took hold.
Devro also flagged strong cashflows during the first quarter, ending the period with comparable levels of leverage to 2020 year-end, including the dividend payment made in January.
In its update to coincide with its annual shareholder meeting, being held virtually, the firm told investors: “We are encouraged by the good volume growth performance in Q1 and, whilst we expect this trend to continue we remain mindful of the uncertainties arising from the ongoing Covid-19 pandemic and likely foreign exchange headwinds. As a result, our expectations for 2021 remain unchanged.”
Analysts at brokerage Shore Capital noted: “Devro has issued a very encouraging trading update for the period 1st January to date.
“Still relatively early in the year, and with uncertainty remaining around Covid plus building currency headwinds, management’s full year expectations are unchanged. As such, we do not adjust our forecasts for the time being, looking for [full-year] 2021 earnings per share growth of circa 5 per cent to 17.3p.
“With the potential for forecast upgrades as we move through the year, coupled with ratings expansion, we reiterate our ‘buy’ stance.”
Last month, Devro provided an upbeat outlook after serving up healthy full-year figures.
Chief executive Rutger Helbing said the new financial year had “started positively” and the group was “well positioned for the future”.
Despite a dip in annual revenues to £247.6 million from £250m a year earlier, underlying operating profit was up 4 per cent to £40.8m. The group revenue figure was marginally lower due to “adverse mix and other products declining”, bosses noted.
A proposed final dividend of 6.3p was declared bringing the total payout to 9p per share – flat on the prior year.
During the past year, the group closed its Bellshill plant, delivering “substantial” annualised cost savings. It said a structured process to identify and convert sales had left to a “strong pipeline of opportunities” for 2021.
Helbing said: “The progress we made in all areas of our 3Cs strategy in 2020 provides a strong foundation for further strategic and trading performance improvements in 2021. We also expect another year of good free cash generation.”
Analysts recently noted that the “seismic transformation” seen at Devro had been underappreciated by investors, adding they believed there could be at least 30 per cent upside to its share price.
A research note by house broker Numis said the improved financial performance now being seen by the company reflects the “substantial changes” brought in by its current management team.
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