Scapa’s smart new strat­egy could de­liver big up­side

It plans to use clients’ own fa­cil­i­ties to boost ca­pac­ity and win new con­tracts

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Bond­ing so­lu­tions spe­cial­ist Scapa (SCPA:AIM) is worthy of closer at­ten­tion thanks to an in­trigu­ing new tech­nol­ogy trans­fer strat­egy to sup­port growth in its health­care di­vi­sion. Scapa sup­plies bond­ing so­lu­tions and man­u­fac­tures ad­he­sive-based prod­ucts for the health­care and in­dus­trial mar­kets.

Its in­dus­trial di­vi­sion ac­counts for ap­prox­i­mately 60% of sales and fo­cuses on ad­he­sive com­po­nents for a range of tapes for ca­ble wrap­ping and pack­ag­ing.

The health­care di­vi­sion gen­er­ates 40% of sales, part­ner­ing with mar­ket lead­ers to de­sign, de­velop, man­u­fac­ture and com­mer­cialise skin-friendly ad­he­sives for wound care and med­i­cal de­vices.


Un­der its new strat­egy, Scapa plans to use so-called tech­nol­ogy trans­fers where it buys a man­u­fac­tur­ing site or a unit at a de­pre­ci­ated value from a client. It also re­ceives a man­u­fac­tur­ing con­tract on be­half of the client.

Scapa is tak­ing ad­van­tage of more phar­ma­ceu­ti­cal com­pa­nies out­sourc­ing ser­vices, al­low­ing them to fo­cus on other ar­eas such as mar­ket­ing and brand­ing.

Tech­nol­ogy trans­fers will help Scapa ac­quire more ca­pac­ity and in­crease pro­duc­tion with­out sig­nif­i­cant out­lays of cap­i­tal.

It could also lead to re­cur­ring rev­enues by en­cour­ag­ing cus­tomer loy­alty and speed­ing up prod­uct devel­op­ment times.

Over the last year, Scapa sealed tech­nol­ogy trans­fers with a wound care busi­ness and a global con­sumer prod­uct firm.


Beren­berg an­a­lyst Ben­jamin May spec­u­lates £25m of spend­ing on tech­nol­ogy trans­fers ev­ery year could yield ‘at least 30% up­side’ to his es­ti­mates for Scapa over the next three years. On the back of forecast-beat­ing an­nual re­sults, May up­graded earn­ings be­fore in­ter­est and tax (EBIT) ex­pec­ta­tions by 1% in 2019 and 2020 to £38.1m and £40.6m, re­spec­tively.

For 2021, EBIT is an­tic­i­pated to jump 7% to £43.1m. Fore­casts for sales, earn­ings per share and div­i­dends were also hiked over the next three years.

Scapa trades on a 21.8 times forecast earn­ings per share (EPS) for the year to 31 March 2019 and so isn’t cheap.

If the stock hits the 520p tar­get price set by Beren­berg the PE ra­tio would be 26.8 times, at cur­rent EPS es­ti­mates. We be­lieve such a pre­mium rat­ing is jus­ti­fied based on Scapa’s good track record and growth strat­egy. Fur­ther levers for growth in­clude or­ganic gains and M&A, as well as man­u­fac­tur­ing ef­fi­cien­cies and up­selling in the in­dus­tri­als di­vi­sion. Beren­berg ar­gues Scapa can ben­e­fit from reducing changeovers in man­u­fac­tur­ing lines and up­selling ser­vices to its larger clients.


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