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Hard to believe the valuation compression we're witnessing in this former 'quality growth' darling.
2017 IPO price = 100p.
September 2021 peak = 385p.
October 2022 placing of shares = 115p.
Today = 97.6p (to sell).
I'm disturbed by what's happened here. To restore some sanity to the share price, they need to quit the growth plans, at least temporarily, and focus on margins, profitability and cash generation - that's my view.
Placing killed it a bit seems be recovering.
Oh dear. I've always had a nagging worry about Strix's Chinese operations, but ignored my own concerns. They probably overpaid for Billi in this market too. Management got complacent? Subscribers to the recent placing just a month ago can't be feeling too clever...
I've risked at top-up at 81.7p because I have a 3-5 year outlook and don't want to accept I've got this one completely wrong. Nonetheless, time to batten down the hatches, it's going to be a long old haul from here.
Been watching Strix for some time. It seems unjustifiably bashed about in terms of SP and today's drop really looks overdone. Have made a small investment at just under 84p as the business looks good overall. I agree with unhooked that I will probably be looking post-recession for this to recover well but I'm happy with that.
GLA.
'I've risked at top-up at 81.7p because I have a 3-5 year outlook and don't want to accept I've got this one completely wrong.'
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The thing is, if you know deep down you made a mistake, then why would you throw good money after bad? I don't believe STRIX has levelled with investors yet. Eg in today's statement:
'. . . anticipates adjusted profit after tax for the full year to be approximately £23m'. NB adjusted profits. If you look at p/y PBT, you will see over the last 4 years £24.13m (2018), £22.88, £25.45m, £21.51m, and now for this year they forecast £23m. So it can't be the profit forecast that's spooking the market as this is hardly a profits warning. So there has to be something else, some other skeleton in the cupboard that they are being tight-lipped about.
We know the shorters got wind of it as early as January, and they've been proven 100% right. So I'd keep a close eye on the shorters now. If shorting increases, you will know there's even more bad news to come.
From a quick review of the last couple of years financial statements, this appears to be a classic case of a company wanting to have their cake & eat it, i.e. wanting to be a debt funded growth company whilst at the same time pay big dividends.
They generated operating cashflow of £53m in 2020+2021, £40m of which was spent on investing activities such as buying fixes assets, leaving a net £13m to support future growth.
However, dividend payments across both years totalled just shy of £32m, this was paid for by increasing their net borrowings by £29m. I.e. they've effectively been paying dividends via their RCF.
Now this was fine when times were good, however clearly economic activity has taken a turn for the worse + risks around Chinese operations should have been clear and obvious to management post pandemic. Quite why they decided to make another big acquisition in early October is anyone's guess, however it's added fuel to the fire re. debt.
Personally I don't see how paying the final dividend of around £12m is feasible or sensible in light of a profit shortfall of £4-6m versus expectations just over 2 months ago. Add in the fact their interest costs are likely around £4-5m per annum and in my view they need to suspend it and plough all free cash flow into deleveraging as rapidly as possible. Until they do that I wouldn't consider buying shares here.
Yes bendi, you've quickly picked up on a behavioural affliction of mine, which is loss aversion - a difficulty in finally admitting I made a mistake... and it can of course lead me to average down on stocks I shouldn't.
However (famous last words) I believe this one's different. Strix is obviously not going bust. It's also gotten cheap by any measure for a company with Strix's dominant market share of safety kettle controls.
You rightly note that it can't be the profit forecast that's spooking the markets and yr suspicious mind (by no means meant to be an insult - it's good to have a suspicious mind when investing) naturally turns to a possible undisclosed 'skeleton in the cupboard'. However, I don't think management are keeping tight-lipped and are dishonestly manipulating or withholding information - or if they are, they're not doing a good job judging by the sp - coming so sooN after the covid protests in China, I think it's simply the market speculating v negatively about Strix's Chinese connections.
Myself, I've taken an active optimistic stance re the outlook for China, which is why i've invested in companies like AWE and investment trusts like JCGI and FCCS. Time will tell of course.