Tempted by the Xaar share price after a 6% rise? Here’s what you need to know

Shares in Xaar plc (LON: XAR) collapsed this year, but this could be the first sign of a solid recovery.

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Back in March, I liked the look of inkjet technology developer Xaar (LSE: XAR) after 2017 results gave its shares a 15% boost — and its record of paying well-covered and progressive dividends added to the attraction.

Profit warning

I was later shocked by a profit warning on 30 August, apparently triggered by weak trading since June and poorer than expected adoption of one of Xaar’s latest printheads. The share price dropped off a cliff, losing 30% of its value on the day.

But interim results Wednesday, together with the announcement of a commercial success, caused the price to pick up 6.5% in morning trading, so maybe the fall has been overdone.

Underlying revenue for the half dropped by 39%, with most of that caused by falls in legacy ceramics printing, but the slower update of the firm’s Xaar 1201 printhead also played its part. We’re also looking at an adjusted pre-tax profit of £3.2m, down 60% on the first half of last year, with adjusted EPS cut in half to 4.6p.

And that previously impressive dividend has taken the brunt of the crisis, slashed to 1p at the interim stage from 3.4p. Is there any good news?

Long term?

Chief executive Doug Edwards continued the theme that it’s all down to the ceramics business and the disappointing sales of that new printhead, but remains confident that the “long term opportunity for Xaar remains very significant.”

Then there’s the news that Windmöller & Hölscher have decided on the Xaar 5601 printheads for the development of a single-pass press for flexible packaging. Mr Edwards described the deal as a “significant milestone for Xaar.”

Full-year forecasts have been slashed and the dividend has taken a break, but short-term hard times can be great for recovery investors — just as long as there are no further profit warnings.

Fashion star

Online fashion retail is eclipsing traditional high street shops these days, with Boohoo Group a recent darling with growth investors — though its share price looks suspiciously like it’s following a similar roller-coaster trajectory to ASOS before it.

Quiz (LSE: QUIZ) is the latest comer to the scene, attempting to reshape itself into an online destination for the current generation of fashion shoppers and away from its solid bricks-and-mortar legacy. Its first set of annual results as a listed company looked impressive enough.

An AGM day update on Wednesday painted a picture of everything going to plan, with the firm reporting a “positive customer response to Quiz’s product range over the summer.” Partnerships with Next and Zalando have boosted the company’s online presence, but this year Quiz has also been seeing stronger growth through its own websites.

Good buy?

There’s a bit of a hit from Quiz’s association with House of Fraser following that company’s troubles, but Quiz reckons it’s “on track to deliver market expectations for the full year.”

Would I buy the shares? Well, they’re priced a good deal more cheaply than those of ASOS and Boohoo, at least on forward P/E terms. There’s a multiple for Quiz of 21 for this year, dropping to 17 based on 2020 forecasts, while ASOS and Boohoo are facing huge P/E valuations of 63 and 44 respectively.

I do see some volatility risk in the medium term here, but I’m cautiously optimistic about the prospects for Quiz in the long term.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be considered so you should consider taking independent financial advice.

Alan Oscroft has no position in any of the shares mentioned. The Motley Fool UK owns shares of and has recommended ASOS. The Motley Fool UK has recommended boohoo group. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

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