Is Scapa storing up a surprise?

A short trading update from tapes and adhesives supplier Scapa proves that the best things come in small packages. In just 109 words, management told investors all they need to know; and it's good news.

"Brief but delightfully positive in content," is how Charles Pick at Numis Securities put it. Group revenue and underlying operating profit have seen "good growth" year-on-year, said Scapa, despite the strong pound. Profit margin has kept improving and strong operating cash flow has perked up the balance sheet.

It's also worth noting that currency headwinds have eased markedly since the company's last update on 22 July. The pound is down to $1.62 from $1.71, and the euro has averaged less than €1.27. Last year, Scapa made almost 40% of sales in the US and 18% in France.

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"Scapa is well positioned to make further good progress this year and the Board remains confident about the group's outlook," said the company ahead of half-year results on 25 November when we'll certainly get more detail.

Keeping forecasts unchanged for now, Numis expects pre-tax profit of £16 million for the year to March 2015, giving earnings per share (EPS) of 7.7p. But EPS is tipped to grow by an average of over 12% for the next three years. Net cash of £5.4 million is expected to hit £7.9 million this year and £12 million after that.

"This update should be well received and the risks to forecasts remain on the upside tack," says Numis, pointing out that full-year numbers have typically surpassed market expectations. "This full year should see more of the same and this warrants a premium rating."

At 134p, Scapa shares trade on 17 times forward earnings, dropping to 15.6 on 2016 estimates. Strip out net cash and that falls to 16.7 and 14.6, respectively.

Numis reckons the shares could be worth 150p, and Scapa's management team clearly think there's more in the tank. Over the summer, chief executive Heejae Chae bought 15,000 shares at 128p each, finance boss Paul Edwards snapped up 15,811 at 126p a pop, while chairman James Wallace paid between 127.5p and 128.6p for 20,000 shares.

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