The shares may be unmoved since our tip but Devro’s divis tell a different story

Cost savings are coming through and there is plenty of long-term growth potential to add to the 5pc yield, writes Russ Mould

IT MAY not look like shares in sausage casing specialist Devro are on a roll – they are unchanged since our initial analysis in January 2017 – but last month’s interims offer more than enough to maintain our appetite for the Glasgow firm’s shares.

Cost savings are coming through, there is plenty of long-term growth potential and, perhaps best of all, the dividends keep on coming.

Devro declared an unchanged interim distribution of 2.7p a share. That adds to the 23.7p in divis we have already received over the past 33 months and there is the prospect of more to come. The consensus analysts’ forecast of a 9.3p full-year dividend for this year equates to a 5pc yield.

Earnings cover is lower than ideal but respectable enough at 1.7 times, and interest cover of more than

3.5 times gives further comfort as the balance sheet is not stretched relative to current levels of profitability.

In addition, cash generation improved nicely in the first half as pre-tax profits rose by 4pc year on year, thanks to strong volume growth in America and China, which offset tougher conditions in Japan and Latin America.

Devro is a leader in collagen casings and is thus a long-term play on increased protein consumption, especially in emerging markets. More immediately, the release of the more robust Ultra Fine casing, which can withstand deep frying, could provide some further sales momentum in the second half of this year.

Income-seekers are being rewarded for their patience with this one and on barely 12 times forecast earnings and that 5pc yield the shares look good value. Hold.