Devro loses sizzle with profit warning

Devro, a sausage casing supplier, has warned that full year operating profits will be slightly below expectations, although still ahead of last year.It blamed this on a number of factors, namely adverse currency movements, increased raw material costs and extended plant commissioning periods. It expects the trend of increased raw material prices to continue into next year.In an interim management statement covering the period from July 1st to date, the FTSE-250 player was upbeat about turnover, saying: "Sales volumes have continued to grow across a wide range of markets, notably in Japan, Europe and the Americas, with sales of the premium 'Select' range continuing the momentum of the first half. Overall market demand remains strong both in established and emerging markets."The 2012 capital programme involves the investment of approximately £35m to increase capacity and enhance productivity in 2013 and 2014. New lines are now running successfully in Scotland, Australia, USA and Czech Republic. Further capacity is on track for completion in 2013.Consensus forecasts for the full year ending December 31st are for pre-tax profits of £43.64m on turnover of £242.50m. Earnings per share are expected to come in at 21.15p, putting it on a price earnings ratio of 15.9.Commenting on the company's results this is what analysts at Panmure Gordon had the following to say: "Devro's shares are currently trading at a 14.3x price-to-earnings multiple and on an 8.9x enterprise value/earnings before interest,taxes, depreciation and amorisation (EV/EBITDA) ratio for 2013, which is in line with its key peer Viscofan. We continue to believe in the long term growth opportunities provided by rising meat consumption in emerging markets and the opportunity to switch manufacturers from natural gut to collagen casings in developed markets. However given the near term operating challenges and a valuation that looks fair we maintain our Hold recommendation and 320p price target."CM