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Dominant in its core kettle controls space, there is substantial scope for acquisitions to bolster growth
Thursday 28 Apr 2022 Author: Steven Frazer

The UK can make fair claim to global leadership in industries as diverse as financial services, medical research, artificial intelligence, the arts and electronics. Strix (KETL:AIM) slips neatly into the latter category, and even if the name is new to you, its technology is probably not.

Isle of Man-based Strix has become the world leader in the design, manufacture and supply of kettle safety controls, as well as other components and devices involving water heating and temperature control, steam management, and water filtration.

A pioneer in its field, its products are used 1.2 million times a day in 100 countries by 10% of the global population, according to Berenberg analysis. It has grown its kettle controls market share from around 40%, when we first flagged the investment opportunity in 2018, to 56% today.

And it earns industry leading margins above 30% on earnings before interest, tax, depreciation and amortisation, implying expertise and quality that offers genuine pricing power, a vital ingredient of a good investment during these inflationary times.

It derives most of its revenue from selling components to 200-odd China-based manufacturers, either through its in-the-field sales teams or via online channels, and counts more than 450 brands and retail clients, including Siemens and Tefal.

The key to its ongoing success is safety and quality. When you are dealing with 240 volts (UK main power), the last thing brands wants to risk the fallout from dangerous accident in the home. Strix technology is based on a common design which allows for simple regional safety modifications. That means economies of manufacturing scale without complex and expensive production retooling.

Despite all the obvious challenges felt last year (to 31 December 2021) Strix earned £122.7 million, growth of nearly of 29% on a constant currency basis thanks to a mixture of new product launches, geographical expansion and strong demand in its core kettle controls division.

Its water unit is rapidly emerging as another growth driver, with revenues here jumping 82% last year to £21.4 million, helped by acquisitions, to become meaningful contributor to the whole.

Yet the market has remained stubbornly against the company, blinded by wider macro, geopolitical concerns, and lockdown restrictions in China. Strix shares are down 28% so far in 2022. Growth ahead is likely to be steady rather than spectacular, though there remains a considerable pipeline of acquisition opportunities which could super-charge growth.

Currently trading on a 2022 price to earnings multiple of 13.8, falling to 13.2 next year, we believe there is considerable scope for share price gains as Strix leverages its leading position and technology to expand its market share even further, with acquisitions offering exciting potential to ramp up its water side.


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