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This vertically integrated eyewear frames maker has competitive advantages and a clear growth vision

Eyewear frames specialist Inspecs (SPEC:AIM) joined the stock market in February after raising £23.5m of new money by issuing stock at 195p. The Bath-based personal goods play got its IPO away before the coronavirus pandemic roiled equity markets and forced governments around the world to shut down their economies.

Inspecs has an eye-catching growth story to tell, eventually expects to pay a dividend that grows in line with earnings and the shares currently trade 11.5% below their recent issue price. So are the shares worth trying on for size for investors with a long-term view?


Run by founder and chief executive Robin Totterman, Inspecs makes money through the design, manufacture and distribution of eyewear frames to global retail chains. The £122m company’s broad range of frames covers optical, sunglasses and safety, and they are either branded or private label.

A key competitive advantage is Inspecs’ vertically integrated business model. As one of only a few companies that can offer a one-stop-shop solution to global retail chains, fans of the business believe it is well positioned to continue taking market share in the expanding international eyewear market.

Its customers include global optical and non-optical retailers, global distributors and independent opticians, while the company’s distribution network covers over 80 countries and reaches approximately 30,000 points of sale.

It is also worth noting that Inspecs is mainly focused on the affordable mid and entry level segments of the market, a strength if people are watching the pennies in the wake of the pandemic.

Key brands produced under licence include Superdry, O’ Neill, Caterpillar, Radley and Hype, while major customers include opticians such as Specsavers, Boots, Vision Express and National Vision, as well as top retailers such as WalMart, ASOS (ASC:AIM), Next (NXT) and TK Maxx.

Despite being a small company, Inspecs is also diversified in terms of its operations, which are spread across the globe: with offices in the UK, Portugal, Scandinavia, the US and China (Hong Kong, Macau, Shenzhen), and factories in Vietnam, China, London and Italy.


A strongly cash generative business, in more ordinary times at least, Inspecs came to market with a strategy to continue growing organically, extend its manufacturing capacity and undertake further acquisitions.

There are lots of private businesses in the eyewear industry that would make attractive acquisition targets, although M&A moves will likely wait until the pandemic subsides and there is better market visibility.

Full year results published on 12 May showed a doubling of pre-tax profit to $7.35m for 2019 on sales up 6.9% to $61.25m. At the time of the joining the stock market, Inspecs had expected to pay a dividend for 2019, but management sensibly opted not to propose a distribution while it weighs up the full effects of the pandemic.

Most of Inspecs’ customers have been forced to close during the lockdown; opticians were among the first to be shuttered due to the close proximity to their customers.

During a productive 2019, Inspecs generated roughly 25% of its revenue in the UK and 75% internationally, manufactured 4.55m eyewear frames, up 19.7% on 2018, and also doubled the size of its Vietnam factory to 8,800 square metres.

In recent months, Totterman’s focus has been managing the impact of Covid-19 on its operations. Management has taken action to reduce costs, preserve cash and protect the balance sheet, leaving Totterman ‘confident that we have a robust liquidity position which will see us through the challenges ahead’.

In the results announcement, the CEO stressed that over the long term, the structural growth drivers in the $131bn global eyewear market remain unchanged and people will still require vision correction.

Indeed, awareness over the need for regular eye examinations is growing and the number of ophthalmic disorders driven by ageing populations is rising.

According to EssilorLuxottica, myopia (near-sightedness) is forecast to affect 4.7bn people by 2050, up from around 2.6bn today, while presbyopia (long-sightedness) is expected to affect 4.1bn by 2050, versus 2.3bn currently.

Increasing prosperity in emerging markets should power sales of fashionable eyewear. People are becoming more aware of the damage done by sunlight and blue light from increased screen usage, while a faster frames replacement cycle is yet another industry growth driver.

Albeit a small part of the market, online is expected to increase share as web-based help, smart search and virtual try-on technologies improve.


Investors considering pocketing the stock should go in with their eyes wide open nevertheless. Risks to consider include the fact that Inspecs is dependent on a fairly concentrated customer base – the top five customers accounted for 48% of sales in 2018 – and it could be hit by increased levels of competition from rival manufacturers and wholesalers able to prise away customers with more attractive terms.

Another risk factor is the potential failure to re-sign winning licensed brands, which would also have a material negative impact on the numbers. The increased use of contact lenses and laser eye surgery are long-run considerations that risk-averse investors might also weigh.

In the short-term, sales are being impacted by Covid-19 related disruption, yet Shares believes Inspecs will see an improving trend as opticians gradually reopen.

Management expects a ‘very active’ Q4 and possibly Q3 when the effects of the virus on the industry will be clearer. Inspecs says: ‘People will still need vision correction, and the likelihood is that there will be greater demand from more value-driven retailers, which encompasses our main key accounts.’

Broker Peel Hunt sees Inspecs as a major beneficiary of changes to supply chains, particularly given the expansion of its Vietnamese facility. It says: ‘We see the potential for material orders with both existing and new customers.’

The broker points out that even before the coronavirus pandemic hit, Inspecs was in talks with the major retailers over significant increases in order sizes. This process has only accelerated during the Covid-19 crisis, because retailers want a secure supply chain and diversification away from China. A number of the major brands are also looking at their supply chains too.

The crisis has created new opportunities for Inspecs, which has played its part in the national effort to combat COVID by supplying the NHS with safety glasses.

‘Sales in the current year will be depressed,’ concedes Peel Hunt, ‘but the issue next year is likely to be the ability to cope with the scale of demand.’ The broker also points out Inspecs is well-funded and in a strong position to emerge from this period with greatly enhanced prospects.


Peel Hunt forecasts a drop in pre-tax profit to $3.6m during a heavily disrupted 2020, recovering to $12.7m in 2021 and $13.9m in 2022.

Based on forecast earnings of 15.5 cents (12.6p) for 2021, the shares aren’t egregiously expensive at 13.7 earnings times. Patient income hunters should also note that Peel Hunt has pencilled in dividends of 2 cents (1.6p) for 2021 and 2.5 cents (2p) for 2022. That implies a yield in the region of 1% which is fairly low but likely to improve in the coming years.

SHARES SAYS: Inspecs has a resilient, vertically integrated business model and a compelling vision for long-run global growth.

Being a small, agile player, it should be able to grow faster than the overall market when the global economic deep freeze thaws, while also improving margins as it scales and benefits from operational leverage. The shares are worth buying now if you’re happy to accept a few bumps along the way.

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