Xaar enjoys relief rally

Trouble-hit Xaar surged as much as 17% Wednesday after the digital inkjet printing technology firm revealed sales into the core ceramic tiles market had stabilised during the fourth quarter. Clearly, there was relief that conditions hadn't deteriorated further - Xaar has issued three profits warnings this year as demand from China dried up.

Management now expects full-year revenue of about £108 million, toward the top of the downgraded range of £105-£109 million, announced in October. "As a result, profit for the year is now expected to be higher than current market expectations," says the firm. Broker finnCap had pencilled in £21 million of adjusted pre-tax profit for 2014.

Forward visibility does remain low and internal forecasts for 2015 are unchanged, with sales unlikely to top £100 million. However, Xaar has axed 20% of its staff and is cutting costs left, right and centre.

Clearly, this is better news, but Xaar will need to do better than this if it is to restore confidence in the City and lay the foundations for a sustainable recovery.

"We suspect in the short term, in the absence of any material profit upgrades, share price upside is limited but the return to a more stable demand pattern indicates we may have reached the low point, providing longer-term investors with an opportunity," says finnCap, which still thinks profit will fall to £15 million in 2015.

At 300p, Xaar shares are up 30% from their 231p October low. But a forward earnings multiple of 19 for 2015 looks very generous given picking up business in news sectors outside of ceramics will not happen overnight. There's also a chance Chinese construction volumes will drop off again.

Final results on 19 March will give us more clues.