Stock in Focus: Should Sprue Aegis sound an alarm for investors?

Wednesday, Feb 17 2016 by
24
Stock in Focus Should Sprue Aegis sound an alarm for investors

If you’re interested in developing a more systematic investment style, Stockopedia’s Guru Screens are a great resource. Each screen uses a set of investment rules that have been designed to replicate the approach of well-known and successful professional investors.

These can be a great starting point for developing your own rules and for understanding the common themes that define successful investment styles.

As I write, the top-performing screen based on annualised performance is the Bill Miller Contrarian Value Screen. This has delivered an annualised return of 32.6% since its inception on Stockopedia. US fund manager Bill Miller beat the S&P 500 for 15 consecutive years, from 1991 until 2005. His style focused on finding attractively-valued shares, with good free cash flow and earnings growth.

Interestingly, just six shares qualify for the Miller screen today. This suggests to me that despite recent market falls, many companies face an uncertain outlook and are not necessarily cheap.

One company that does qualify for the Miller screen is smoke and carbon monoxide alarm specialist Sprue Aegis. This small cap moved from the ISDX index to AIM in 2014, and has performed very strongly since then.

I considered looking at Sprue Aegis at the start of the year, but thought the shares looked fully priced. The firm then issued a solid trading update on January 20, which Paul Scott commented on here. However, since then, Sprue shares have have fallen by more than 20%. Has the market sell off thrown up a bargain?

Stockopedia’s Guru Screens certainly suggest this view. Sprue Aegis is one of only 12 UK stocks out of 2,726 covered by Stockopedia to qualify for five or more Guru Screens. Sprue Aegis also has a StockRank of 94.

Why does it score so highly?

Improving value

As we’ve seen, Sprue Aegis shares are more than 20% cheaper than they were a month ago. That’s a good starting point. It’s also is one of the reasons this stock’s ValueRank has risen by 14 places to 79 over the last 30 days.

Looking under the bonnet of the ValueRank, it’s clear that Sprue is not an asset play. This stock’s value credentials lie in its valuation, relative to free cash flow and operating profits:

56c444f119af4sprue_2.png

The two standout numbers here are a trailing price/free cash flow multiple of just 5.75 and an earnings…

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Disclaimer:  

As per our Terms of Use, Stockopedia is a financial news & data site, discussion forum and content aggregator. Our site should be used for educational & informational purposes only. We do not provide investment advice, recommendations or views as to whether an investment or strategy is suited to the investment needs of a specific individual. You should make your own decisions and seek independent professional advice before doing so. Remember: Shares can go down as well as up. Past performance is not a guide to future performance & investors may not get back the amount invested. ?>


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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 »

LSE Price
69p
Change
2.2%
Mkt Cap (£m)
31.0
P/E (fwd)
8.4
Yield (fwd)
n/a



  Is LON:SPRP fundamentally strong or weak? Find out More »


7 Comments on this Article show/hide all

Camtab 17th Feb '16 1 of 7

Always worries me when a company is relatively new to the market and it has some obfuscating issues like the French sales for example I like Sprue but just can't pluck up the courage to fill my boots

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Roland Head 17th Feb '16 2 of 7
1

In reply to post #121715

Camtab,

Interesting point -- the underlying reason behind the surge in French sales is that Sprue Aegis (LON:SPRP) is and will be affected by regulatory/legal changes. This is a classic risk factor. It's also true that we don't yet know just how much sales will fall away as the French surge in demand normalises. A second risk.

I'd argue that regulation requiring smoke/carbon monoxide alarms is only likely to increase in European markets. This should be good for Sprue. Despite this, there will always be a small risk that for some reason Sprue's products will become unacceptable in a previously profitable market.

As I said in the article, I'm fairly comfortable with the outlook here, based on management guidance. I'm also reassured by the quality of Sprue's financials -- no small factor in my view.

Regards,

Roland

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jjis 18th Feb '16 3 of 7
2

Hi Roland, thanks for your note on this one. There was also a good write up too on your old stomping ground TMF - which also explored possible German regulatory opportunities which might help to offset the fall back in French demand.

Regards

Jamie

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Source 18th Feb '16 4 of 7
2

Another one where director selling seemed well timed! 3 different directors sold a little while ago.

I wouldn't buy this until they bought some back given their holdings are quite small anyway...

Maybe worth picking up later though if the choppy markets present an opportunity around 250p or so for me :) Afterall its only fallen back to last summers prices only at the minute...

Thanks Roland.

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Roland Head 19th Apr '16 5 of 7
2

In reply to post #121787

Source,

The director selling certainly does seem well timed after yesterday's 50% fall...

Roland

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herbie47 19th Apr '16 6 of 7

Roland the Bill Miller Contrarian Value Screen has only 7 shares in it, it also has not gone up for 2.75 years, it did extremely well (+279%) in the first 1.75 years but nothing since, maybe interesting to see what shares were inc. in the early days.

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Source 19th Apr '16 7 of 7
1

In reply to post #128348

Yep sad , and hard to see why the management would not have been aware of this earlier...

Regards,
Source.

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About Roland Head

Roland Head

I'm a private investor and writer on stock markets, with a particular fondness for free cash flow, dividends and value. I also have a lingering interest in commodity stocks. In earlier life, I worked as an engineer in telecoms and IT. The rules-based approach required for this kind of work undoubtedly influenced my investing style. I also learned a lot from seeing the tech bubble deflate in 2000-1, when I was working for a large and now defunct Canadian firm.  My investment focus is increasingly on developing rules-based strategies such as my Stock in Focus portfolio. This reflects a significant part of my personal portfolio and is the subject of my weekly column here at Stockopedia. more »

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