Sprue Aegis bid - a win for sound investment methodologies

Tuesday, Apr 30 2013 by
Sprue Aegis bid  a win for sound investment methodologies

Yesterday's announcement that the $5bn Jarden Corporation was making a bid for ICAP Securities Exchange tiddler Sprue Aegis wouldn't have threatened many headlines, but hidden within this story and the share price breakout are plenty of pearls that investors can learn from.

Sprue Aegis is the kind of company that the City neglects to its regret but that private investors are so able to take advantage of. On average only £15,000 of Sprue's shares have traded each day over the last few months. Clearly institutional fund managers can't trade companies like this without the share price soaring so they tend to completely ignore them unless they can pick up a big line of stock in a placing. It's for this reason that one can so often find hidden gems amongst the smallest companies on the market.

Sprue has certainly been a hidden gem in recent years but what the Jarden Corporation knows that the City doesn't is that Sprue has built up an impressive track record of innovation, execution and excellence in its tiny niche - clearly they think it worth bidding up for.

What's in the silly name?

Sprue Aegis is a fairly young company with a fascinating story beginning in 1998. The founders had decided on their business model before they even decided what products to make. They wished to build plastic electronics devices in a global market without strong brands where the user experience was poor. But it was only when they spotted a broken fire alarm hanging from a ceiling that the proverbial lightbulb switched on.

15 years later and Sprue is the UK market leader in home safety products (smoke and carbon monoxide alarms), with exclusive supplier status to Tesco and B&Q and exclusive rights to distribute many of minority shareholder Jarden Corporations products too. Meanwhile increasing domestic safety legislation across Europe provides a growing market for the company to sell into.

I'm not going to go into the details of the story here as there are some excellent write ups about Sprue Aegis already on the web. Glasshalfull has promoted the investment case extensively on the Motley Fool and on ADVFN, while all credit should go to David Stredder for bringing the company to many private investor's awareness at his Mello meetings.

Beyond the 'story'...

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Fireangel Safety Technology Group plc, formerly Sprue Aegis plc, is engaged in the business of design, sale and marketing of smoke and carbon monoxide (CO) detectors and accessories. The Company also operates its own CO sensor manufacturing facility in Canada. The Company is also a provider of home safety products. The Company's principal products include smoke alarms and CO alarms and accessories. Sprue manufactures CO sensors for use in all its CO alarms. Sprue serves in the United Kingdom retail and the United Kingdom's fire and rescue services. The Company offers a range of brands, including FireAngel, AngelEye, Pace Sensors, First Alert, SONA, BRK and Dicon brands. The Company's subsidiaries include Sprue Safety Products Limited, which is engaged in distribution of smoke and CO alarms, and Pace Sensors Limited, which is a manufacturer of CO sensors. more »

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6 Comments on this Article show/hide all

jraitt 30th Apr '13 1 of 6

Ed. I bought these for - I think - 3p when they first came to market on Plus market. I held for a long time and they did nothing. I bought 3 of their products and plugged them in light sockets. Two of them went off at different times later with no apparent reason and I could not stop the noisy beep. Even unplugging them had no effect so I ended up dumping them in a neighbour's rubbish bin. I sold my shares . Rather wish I had had more patience. Sad story.

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Edward Croft 30th Apr '13 2 of 6

In reply to post #72919

Crikey - I've always been an advocate of the Peter Lynch ethic - that you should buy, use and test the products of companies you own shares in. I did that for RCG Holdings (LON:RCG) and had an appalling time - couldn't get back into my computer ever again ! Similarly for Globo (LON:GBO) I remain skeptical of the Go! Enterprise platform as the iPhone app is very buggy and frankly I'd never use it myself.

I have never used or tried Sprue's products - that's a terrible experience you've had there. Company PR and marketing teams are very good at selling the message of 'great design' or 'powerful brands' but there's nothing quite like the actual experience for the whole truth.

Thanks for contributing on this thread - I'd be interested to know if others have experienced Sprue Aegis' products too. Might be worth a trip to B&Q or Tesco.

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jraitt 30th Apr '13 3 of 6

In reply to post #72921

Ed, That was about 10 years ago - hopefully a few refinements have been made
since then.

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it_trader 1st May '13 4 of 6

In reply to post #72922

Absolutely gutted I had a look at buying into Sprue Aegis a few weeks back but I couldn't deal online and couldn't be bothered ringing my broker to deal and find out if I could place them in my ISA. That'll teach me and learnt a vital early investing lesson! If a company looks amazingly solid go the extra mile.

With regards to trying out the products. I bought a carbon monoxide detector a few months ago which sits in a boiler cupboard close to our babies bedroom. Hopefully I'll never have to find out if it works or not.

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Glasshalfull 18th May '13 5 of 6

As posted on Paulypilots daily update comment (17/05/13), but probably of more relevance here.

Sprue Aegis (SPRP)


Firstly, I've updated the thread header over on ADVFN to reflect the Jarden/BRK bid and Sprue Defence Document:-


You will have noted from the Defence document that Sprue Aegis have received letters of intent rejecting the bid from shareholders with 52% of the equity & have intimated that they will peruse a move to AIM in the next 12 months. They have also offered to place Jarden/BRK's 27.7% shareholding with investors as part of their move to AIM,

"If BRK believes 90p represents “full and fair value” for Sprue Shares, the Independent Directors will work with BRK to place its shareholding at 90p per share"

Given the wholly inadequate and frankly embarrassing bid from Jarden/BRK I don't foresee a scenario which would see them come back with an increased offer. Having had time to consider all the facts & further detail contained in Sprue's Defence document, especially in light of the lack of investment & falling sales of BRK products, the current distribution agreement between the two companies is clearly of far more importance to Jarden/BRK.

I am now content that Sprue are responding from a position of strength. They clearly don't need the distribution agreement having assumed employees & contracts and Jarden/BRK would require to start all over again in building a European foothold if Sprue sever the link with them.

Sprue have signed significant contracts over the last 6/7 months & new products coming on stream so the forecasts for 74% earnings growth appear to have some weighting. Indeed, the following forecasts for Sprue Aegis indicate that they are on the cusp of considerable earnings growth over the next few years.

?31/12/13 - 10.8p (+74%) - £5.3m PBT (net cash forecast c.£7.6m – Dividend forecast 6.0p)
•?31/12/14 - 15.6p (+44%) - £7.6m PBT (net cash forecast c.£10.4m – Dividend forecast 8.0p)
•?31/12/15 - 21.2p (+36%) - £10.2m PBT (net cash forecast c.£14.9m – Dividend forecast 10.0p)

Add the fact that since initiating a dividend of 0.5p in 2009, they have DOUBLED it each year since. The dividends forecast over the next few years would equate to a dividend yield of 11% for year ending 2015.

Lets also not forget that they also exhibit strong cashflow and had £6.2m net cash as at 31/12/13 while only on a current market cap of £34.8m, with the cash position forecast to increase over the forthcoming period.

If they achieve as forecast the the shares will multi-bag for the current price of 90p as investors lock onto the "moat" they have within the UK in terms of retail and Fire & Rescue sales; release of new products & brands; take advantage of legislative requirements across Europe; develop sales within new long term contracts with British Gas & Baxi, all of which should lead to an accelerating earnings record coupled with progressive and meaningful dividend yield.

Essentially, Jarden/BRK have attempted to "steal" the company on the cheap rather than offering a fair price.

I've absolutely no idea if they'll dispose of their holding but I'm sure all will become clear over the next year as Sprue initiate the move to AIM and re-negotiate or serve notice on the current distribution agreement with Jarden/BRK.


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PhilH 30th Apr '15 6 of 6

It is with a heavy heart that I pulled the trigger and sold my complete holding in Sprue today. It's been a fantastic powerhouse in my portfolio generating a 284% gain in my SIPP and a 384% gain in my fantasy fund.

My selling is guided by price momentum and I was hoping for a strong recovery from the spike down. That lack of reaction combined with a decreasing StockRank, down to 48 now (largely due to the loss of momentum both in price and reducing earnings forecasts have encouraged me to sell.

I love the company and the products however I can't get away from the idea that the French market was a goose laying a golden egg and that unfortunately the exchange rate conspired to sabotage the golden egg. I don't have confidence that the increased earnings generated as a result of the French market can be repeated.

All of those factors combined encouraged me to sell out. It's the right decision for me and hopefully it's 'a bientot' rather than 'au revoir'.

Good luck to all holders.

Professional Services: Sunflower Counselling
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About Edward Croft

Edward Croft


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