Canaccord Genuity downgrades Strix to 'hold'

Canaccord Genuity made the move after Strix announced that it now expects full-year adjusted profit after tax to be broadly in line with consensus estimates of £32.2m, despite a challenging first half that saw several big name brands pull out of Russia, resulting in a loss of up to £7.0m in kettle control and water revenues, while cost inflation and Covid-19 related expenses also continued to impact margins.

The Canadian bank noted the group had increased kettle control and water prices by an average of 4-5% to offset inflation and intends to flex its variable cost base and drive production efficiencies through the second half as part of an effort to minimise the impact. Strix also cited "a seasonal 2H weighting" across its core kettle control business.

However, Canaccord remains "unconvinced" that sufficient growth will flow in the near term from the water and appliance verticals to meet Strix's target of doubling revenues to roughly £200.0m by 2025.

"We think the lifestyle products it provides such as water jugs, filters, and chillers will not be immune to consumers tightening their belts, and they will likely trade down/use products for longer as inflation bites and fears of a recession rise," said Canaccord, who lowered its target price on the stock from 300.0p to 200.0p.

"We take a cautionary stance, downgrading our 2022E PAT forecast to £30.5m (from £32.1m) which results in 5% EPS downgrade."

Reporting by Iain Gilbert at Sharecast.com