Soaring Scapa still well-backed

Last year's decision to shut its Swiss factory and move business to France distorted Scapa's reported 12-month results. Strip out £5.1 million of associated costs, however, and trading profit at the tapes and adhesives firm grew by more than 14%. The run of margin improvement also extended to a sixth straight year, and a new acquisition will give returns a further lift in the months ahead.

In truth, we knew the numbers would be good; Scapa said so in April, and it is normally very reliable. We said 18 months ago that "the upward share price trend may have further to run". It did, and it's more than doubled in value since from 120p to 250p.

Now, Scapa confirms a profit of £21.3 million in the year ended 31 March 2016, up from £18.6 million, on revenue up 4.5% at £247 million. Trading profit margin rose by 70 basis points to 8.6%, and adjusted earnings per share (EPS) was up over 16% at 10.6p.

And they'll be even better this year. Charles Pick at Numis Securities had pencilled in EPS growth to 12p, and 13.8p for the year to March 2018. But after Scapa said it will pay up to $42 million (£29 million), mostly cash, for wound care firm EuroMed, the analyst increases forecasts to 12.1p and 14p respectively.

New York-based EuroMed made a cash profit of $2.5 million in 2015 on sales of $18 million, which prices Scapa's $35 million upfront cash payment at 14 times cash profit and 1.94 times sales. The extra $7 million is earnings-related.

"The focus on consumer wellness and advanced wound care means there is a good fit with existing Scapa operations with excellent cross-selling scope medium term," said the firm, with chief executive Heejae Chae adding that the acquisition "is another key step in the execution of our healthcare strategy, to become the strategic outsourcing partner of choice for our global customers."

Scapa's healthcare division is already doing well. Revenue there jumped 26% in the past year, with the First Water acquisition chipping in almost 18% of organic growth. Trading profit at the unit rose to £14 million, also up by 26%, or 17.6% at constant currency, keeping profit margin steady at 15%. This easily offset a small decline in top line growth at the industrial tapes business.

Elsewhere, net debt shrank to £2.6 million and should benefit from about half the anticipated £2 million annual saving from shutting the Swiss site. It will probably top £21 million this year, however, due to acquisition costs.

As reward for sealing the acquisition of EuroMed, Pick has upgraded his price target from 255p to 280p. At the current price, they trade on less than 21 times forward earnings, dropping to less than 18 for next year. Not cheap, but justifiable given the market estimates average EPS growth of 15% for the next two years.

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