Topical Tip – Could Scapa Group’s ongoing dispute benefit you?

Topical Tip – Could Scapa Group’s ongoing dispute benefit you?

Although Scapa Group (227p) is currently involved in an ongoing dispute with ConvaTec, this is already factored into the share price and it is not been the only uncertainty which has been faced this year. In May it was announced that Heejae Chae was to step down as Group Chief Executive but the following month this plan was changed. With these distractions it is no surprise that the share price has fallen significantly.

Scapa Group is a diversified Healthcare and Industrial company with a focus on bringing ‘best-in- class innovation, design and manufacturing solutions’ to its customers. Scapa Healthcare is a trusted strategic partner for the leading companies in Advanced Wound Care, Consumer Wellness and Medical Device Fixation around the world. It partners with global MedTech companies to develop and manufacture innovative skin friendly medical device fixation and topical solutions. These are taken from inception through to market delivery at state-of-the-art facilities. Scapa Industrial is a global supplier of bonding solutions and manufacturer of adhesive-based products which offer value in industrial applications due to their lightweight, easy-to-apply properties. It has a wide range of products, including adhesive tapes, films and foams, and the company can engineer custom designs even for unique applications.

Final results were released in May, alongside the news that Heejae Chae was to resign from his position. In the year ended 31 March 2019 revenue increased 7.0% to £311.8m (2018: £291.5m) and revenue on a constant currency basis grew by 6.9%. Group operating profit fell to £16.8m (2018: £30.7m) largely as a result of several business reorganisation and site closure projects following the acquisition of Systagenix in October 2018. Group profit before tax was £14.9m (2018: £28.8m) but adjusted profit before tax was £36.8m (2018: £27.6m). Adjusted earnings per share improved by 3.8% to 18.9p (2018: 18.2p) and basic earnings per share fell to 5.3p (2018: 15.4p).

Interim results were released on 19 November. Revenue was up 14.3% at £160.8m (2018: £140.7m) but trading profit fell 17.0% to £14.2m (2018: £17.1m). Adjusted earnings per share fell by 15.7% to 7.0p (2018: 8.3p) yet underlying cash flow from operations improved to £18.9m (2018: £13.4m). Net debt was £69.7m at the period end of 30 September 2019.

This is an impressive business which has been very well managed in recent years. The share price reached over 500p last year and was even above 400p briefly in May this year, so there is potential for recovery on the back of any positive news. We rate Scapa Group as a BUY.

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