It’s been a tough year thus far for investors in Sprue Aegis (LSE: SPRP), manufacturer of carbon monoxide detectors and other safety devices . In fact, until today, its shares had fallen by around 10% since the turn of the year. However, an upbeat update released today sent its shares higher by over 12% at one point, although they’ve since fallen back, leaving the company around 1% down on the year so far.
The key reason for today’s gain is that Sprue Aegis expects to post a first-half sales figure that’s more than twice that of the previous year, with revenue set to reach £56.5m, up from £23.8m in the first half of last year. Furthermore, operating profit for the period is due to be over three times that of the first half of 2014, with it expected to hit £9m, way ahead of the £2.7m in the same period last year.
And that’s despite significant currency headwinds, with sterling strengthening against both the Euro and the US dollar. In fact, Sprue Aegis estimates that under constant currency conditions its operating profit would have been as much as 68% higher than its expected reported level, which shows just how strong its performance in the first half of the year has been.
Of course, Sprue Aegis operates within Europe and, with the Eurozone continuing to offer little in the way of growth potential, this exposure could put many investors off investing in the company’s shares. However, a key reason for its recent growth was strength in the French market, driven by new legislation that requires all rental properties in the country to install at least one smoke alarm by the end of 2015.
Looking ahead, Sprue Aegis expects orders in France to soften, as landlords comply with the new legislation. However, it continues to have excellent order visibility and, while its new mains-powered range of products called SONA have been subject to production set-up delays, it expects them to drive UK trade sales. That’s especially the case since the company has received very positive feedback from customers on the new products.
Clearly, today’s update is hugely positive and Sprue Aegis now expects full-year results to be well-ahead of expectations. As such, it seems likely that the company’s share price will continue to push upwards, since there has been a major step-change in investor sentiment that could last for the short to medium term. And, with dividends being increased by 25% in the interim results, Sprue Aegis’s dividend yield of 3% is likely to move considerably higher as a trebling of profit should allow what was already a well-covered dividend to grow.
So, while it trades on an historic price to earnings (P/E) ratio of 18.7, which is relatively high, Sprue Aegis’s excellent growth potential means that its shares appear to offer excellent value for money. As such, and with the company continuing to invest in product innovation and technology to expand and improve its range, it appears to be worth buying at the present time.
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Peter Stephens has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.