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12 December 2022
By Maynard Paton
A profit warning and 32% share-price crash brought Strix to my attention the other week:
This small-cap dominates the market for kettle controls, and I wondered whether that strong competitive position could support an eventual recovery.
Let’s take a closer look.
Read my full Strix article for SharePad.
2 thoughts on “[SharePad] Small-Cap Spotlight Report: STRIX”
Great article Maynard. Strix is the classic tale of the cash cow funding the purported stars. Unfortunately it may not turn out that way. The kettle safety business is a toll road and the appliance business is, well, appliances. The only thing they have in common is they relate to water – other than that they are completely different businesses. I attended an analyst meeting in 2019 and a big red flag for me was when Mark Bartlett said they were going to take the fight to Brita in its home territory. Did not really sound like someone who understood what business they were in or should be in.
The accounts also don’t shed any real light on how well these new businesses are doing because Strix has always disclosed very little info about them – only recently has gross margin been disclosed and they still do not disclose operating profit, which is appalling given the amount spent on these equals around a third of the market cap.
The core business had also been overearning as the bulk of the recent capex was to automate their production in China as labour was not so cheap anymore and as you point out their depreciation is running below maintenance capex, which is 7-8% sales.
Maybe these acquisitions (and those to come) will turn out to be home runs, who knows. But I really lament what this stock could have looked like if they had just used all the cash to repurchase shares instead. A brilliant little business trapped in a company that is uninvestable.
Apologies for the late reply. Glad you liked the article though and I agree with all your points. What was a super little business (albeit with perhaps modest growth prospects) has suffered diworsification and the strategy’s outcome looks uncertain alongside debt levels that are not ideal. Good scuttlebutt on the management, too! So often you can pick up vibes in meetings as to whether the boss really knows what s/he is doing!