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Shore Capital says Devro stock to perform 'robustly' after mixed year
Analysts at Shore Capital reiterated their 'hold' recommendation for shares of Devro on Tuesday, but sounded a positive note on the company, pointing to its successful efforts to de-lever its balance sheet and an inflection in the rate of growth of its sales volumes as reasons to expect a positive share price performance.
All in all, the company's mixed results from 2017 were broadly in line with their expectations, albeit with the above offset by expectations for forecast downgrades from analysts.
Devro, a member of the indisputably niche silicone sausage casing industry, reported a little changed underlying EBITDA of £64m and underlying EBIT flat year-on-year at £38.1m, both of which landed roughly within Shore Capital's forecast.
Underlying EPS on the other hand fell 6% to 12.5p, against a forecast of 14.0p, weighed down "by some temporary treatment of funding of its Chinese investment that is expected to fall back in FY2018."
To that, ShoreCap said it would add "modest down ward revisions" to its EPS estimates for the company in 2018, on account of FX headwinds and talk of input cost pressures.
Nonetheless, net debt had reduced by £18.7m to £134.9m, pushing debt from 2.6 to 2.1 as a proportion of operating profits.
"After a period of sustained capital investment and rising debt/leverage, we expect the material change in debt trajectory to be taken well by the market driven by careful cash management and importantly lower cash exceptional costs," ShoreCap's Darren Shirley said.
The broker was also upbeat in its assessment of the company's top line growth.
"Whilst downward revision to forecasts is never welcome, we do believe today's update represents something of an inflexion growth for Devro with volume growth (broad based) returning and a material improvement in the net debt and leverage positions (management target 1-2x EBITDA). We reiterate our HOLD stance on the stock, though can see the stock performing robustly."
As of 1132 GMT, Devro's shares were down 1.2% at 197.60p.