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As a global market leader, Strix shares deserve a significant premium which has yet to register, writes Mark Watson-Mitchell.
Every day we all get to enjoy the benefit of a Strix product. Just the simple act of making a cup of tea or coffee exposes us to this group’s innovation technology.
Based in the Isle of Man, Strix Group (LON:KETL) is the world leader in designing, making and supplying kettle safety controls.
This company can trace its origins back to 1951 when Eric Taylor set up Castletown Thermostats. During the Second World War Taylor had invented a revolutionary thermostat that was able to control heated flying suits, worn at high altitudes by bomber crews.
John Taylor, his son, changed the name of the company to Strix some 31 years later.
By 1988 the company had already become the world leader for the supply of controls to the domestic water boiling appliances market. By that year it had manufactured a total of 10m controls.
That figure had risen 10 times by 1995 and the Queens Award for exporting bore witness to its global coverage. Come 2003 it was up to 500m controls having been produced. The magic 1bn controls figure was beaten in 2009.
By today I would guess that it has now doubled that record. It certainly is the world’s No. 1 manufacturer of kettle controls, and it has established partnerships with brands, original equipment manufacturers and retailers across the globe, with a 38% market share.
It is estimated that Strix safety controls are used over 1bn times a day by consumers in over 100 countries and by over 10% of the world’s population.
Safety controls for kettles require precision engineering and intricate knowledge of material properties in order to repeatedly function correctly.
Kettles are replaced on average every 3.5 years, which helps to secure some 90% of revenue each year.
The company’s core product range comprises a variety of safety controls for small domestic appliances, primarily kettles, as well as other components and devices involving water heating and temperature control, steam management and water filtration.
To cope with current and anticipated demand the group is looking to build a factory in China, twice as big as its current premises, which will provide efficiency improvements, additional automation capability and create an opportunity to in-source filtration products and processes. That should be built by January 2021 and operational a few months later.
The global kettle market is expected to grow another 15% over the next three years to about £3.45bn retail.
However, in a natural extension for the group, Strix aims to attain similar leadership in the ‘hot water on demand’ market, which is a £2.4bn global sector.
For the year to end-December 2019 brokers’ estimates suggest that group sales will have risen to £100m and that pre-tax profits could hit £29m, worth 14p in earnings and giving a 7p dividend per share.
For the coming year, sales of £108m could push profits up to £32m, worth 15.5p in earnings and enabling a 7.75p dividend.
We will get a clearer view in about three weeks when the company announces its pre-close trading update.
It may well have been tricky on the trading front of late, but I have no doubt that this £380m group will continue to expand its coverage, its market, its sales and its profits over the next few years.
As a global market leader, its shares, now just 196p, deserve a significant premium which has yet to register – my end 2020 target price is 250p.