The pandemic has accentuated our love of a cuppa. With more of us working from home, tea and coffee breaks are more frequent and Strix should benefit from this trend.
The company leads the world in the design, manufacture and supply of kettle safety controls. These allow kettles to switch off once the water boils and they are used a billion times a day by almost 800million people.
The company sells to manufacturers and, in the first half of this year, sales fell as firms strove to conserve cash rather than order new equipment. That pattern has now reversed, with Strix on target for its best third quarter ever and a strong end to the year.
Midas recommended Strix in October 2017, shortly after the group was floated. Then the shares were £1.37. Now, they are £2.34.
The increase reflects increasing confidence about Strix’s prospects and chief executive Mark Bartlett’s successful expansion into areas such as water filters and other purification tools.
The company makes key components for Tommee Tippee baby bottle machines and Aqua Optima filters for fridges and water jugs.
Strix has also pioneered a way of purifying water for animal feeding, adding a bromide solution into trough pipes.
The new technology was launched early last month in China and sales are expected to pick up steadily, as the market could be worth more than £50 million a year there alone.
Strix is based on the Isle of Man, where Covid has been far less prevalent than in the UK, and life continues virtually as normal. However, most of its kettle parts are made in China. When the pandemic erupted there, Strix adapted the new technology, spraying employees’ clothes with a fine disinfectant mist as they arrived for work.
Over time, uses could be found for this technology in hospitals and dental surgeries.
Strix also makes devices that allow taps to deliver hot and cold water and several new products are coming to market, including a kettle that allows users to fill the jug with water but only heat enough for one cup of tea or coffee.
Given that households generally fill their kettles with at least 30 per cent too much water, this device should save money and energy.
Interim results, released last month, showed falling sales and profits for the first six months of this year.
However, Bartlett is confident that results will rebound in the second half and is determined to maintain the total dividend at 7.7p, putting the stock on a 3.3 per cent yield. Brokers expect profits to be virtually unchanged at £30 million for the calendar year 2020, rising to £33 million next year with the dividend moving up to about 8p.
Midas verdict: Strix shares have made good progress and the yield is a comfort for investors. A strong hold for existing shareholders and one to watch for potential buyers.