Super Scapa scores again

Scapa has delivered on the promise it made six weeks ago for good growth in first-half sales and profits. It reckons full-year results will beat expectations, too. In fact, these "excellent" numbers from the tapes and adhesives supplier are so good that analysts have upgraded earnings forecasts, and an undemanding rating suggests the upward share price trend may have further to run.

"One of the most impressive series of numbers delivered by the current management team," reckons Charles Pick, analyst at Numis Securities. Revenue grew by almost 3% to £114.7 million in the six months ended 30 September, or 10% if the effect of the strong pound is stripped out. Trading profit margins improved by 80 basis points to 7.4%, which meant underlying pre-tax profit leapt by 14% to £8.2 million.

Top line growth was most impressive in North America where Scapa grew by 14.8%, ahead of Europe at 2.7%. Healthcare was the standout division, with revenue there up 10% at £35.8 million and operating profit 15% higher at £5.4 million. Clearly, the launch of its platform to support wearable device technologies for mobile monitoring and advance sensing is creating excitement.

Elsewhere, profits at the lower-margin industrial unit edged up 5%, as strength in North American automotive and European construction tape offset weaker cable sales following infrastructure project delays. The smaller electronics business swung to a £0.2 million profit, and will be absorbed into the industrials division next year.

"We are pleased with the group's continued strong performance, growing across all our divisions and regions on a constant currency basis," said boss Heejae Chae. "We remain confident in the growth potential of the business and that the group will deliver full year results above current market expectations."

Numis is so impressed, it's upgraded pre-tax profit estimates for this year by 2.4% to £16.4 million, giving earnings per share (EPS) of 8p. Next year's numbers rise to £18.3 million and 9p, respectively.

At 130p, Scapa trades on a forward earnings multiple of 16, dropping to 14.4 for the year to March 2016. Strip out forecast year-end 2016 net cash of £9 million and that multiple falls to a more modest 13.8. Of course, Scapa has the banks onside and could use its cash to make earnings-enhancing acquisitions. Remember, too, that Scapa earns about two-thirds of its profits in North America, so the strong dollar will become a tailwind in the second half.

This article is for information and discussion purposes only and does not form a recommendation to invest or otherwise. The value of an investment may fall. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.