Sprue Aegis (LON:SPRP)                       

Closing Price 123.60p     Down 54% on profit warning

Market Cap   £57 million

Profit Warning   571569cfaa6cfSprueAegisLogo.png

Lots of disappointment in Sprue Aegis (LON:SPRP)  yesterday.  A growth share that has gone not ex growth but negative growth. The share price has collapsed.  The share price may continue falling tomorrow if one of the institutional shareholder throws in the towel. There must be plenty of small investors caught out badly today in what had previously been a good story.

I can't resist however the falling knife. I had to buy a few Sprue Aegis (LON:SPRP) near close of business under 125p.  I was never was interested in the share previously due to Sprue Aegis apparent full valuation.  Today that  has changed somewhat, if I presume the company has stumbled the one time only. 

I do realise the company won't get the higher market p/e rating again. It takes time to be fully forgiven by the market. Give it 12 months.

Most disturbing to my investment thesis is the projected trading loss in the first half of next year will be £1.9 million. The back to profit story of £1.9 million profit by the full year does suggest a good turnaround of £3.8 million in the 2nd half.

Some positive points to consider

  • The company has in the past under promised and then surprised on the upside.  Maybe the profit forecast by the company may be better.
  • The £5.5 million set aside for battery failure seems excessive.  In general 10 year battery life claims by companies for fire alarms seems to be a general problem across the industry. 
  • The eventual bounce back in profits might be facilitated by the German market in which  progress is delayed at the moment.  However it is claimed the Germans buy 5 or 6 alarms per household rather then the French who seem to buy one only. Better again the Germans buy the most expensive alarms with better margins.
  • Entry into the Polish market is a possibility but an unlikely immediate catalyst for change. Lots of small competitors there, but possibly price sensitive to superior products.
  • A possible takeover bid by the largest shareholder who offered 90p in the past which was rejected strongly.  Now might be…

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