Scapa Group - Bonkers valuation of the week
The high valuation assigned to this manufacturer of bonding solutions and adhesive components has been a puzzle to us for many years. Although the shares are well-off previous highs the valuation still looks bonkers, as we consider here.
Results from Scapa Group (LON:SCPA) for the year ending 31 March 2019 saw revenue climb 7 per cent to £311.8m and adjusted earnings per share rise a modest 3.8 per cent to 18.9p. At the current share price of 335p this suggests the shares trade at a seemingly acceptable multiple of 17.7x reported earnings, however, this doesn’t present the full picture. Look closer and diluted earnings per share were only 5.2p, pushing the price earnings multiple to a heady 64x.
The company conveniently focuses on their definition of ‘trading profit’, rather than ‘operating profit’, in calculating earnings per share. For the year ending March 2019, trading profit came in at £38.2m and ignored amortisation of £6.0m and exceptional items of a staggering £12.8m, among other items.
The exceptional costs arose due to business reorganisation and site closures, something that has been a regular theme for Scapa over many years as it transforms itself into a business focused on advanced wound care and…
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