Devro tipped to post profit rise, despite headwind

The FTSE 250 company, which claims to be the world leader in the production and distribution of collagen sausage casings, has been tipped to post “strong profit growth”​ for 2015, 2016 and 2017.

Despite headwind in the foreign exchange market – which has seen depreciations in the Chinese yuan, the euro, and more recently the pound – Investec says Devro will post pre-tax profits of £30.5m. This is up on its end-of-year trading results for 2014, after the company reported £28m in gross profit.

The projection for three years of growth will surely come as a boost to Devro, after its pre-tax profits in 2013 were in excess of £41m before falling by £13m in 2014.

The London Stock Exchange-listed company has been active internationally since then, driving forward the construction of two projects in China and the US. The two builds are nearing completion, with trial production runs under way at the US plant. Devro hopes to close its outdated US plant in the first half of 2016, says Investec.

Once both plants are fully operational, Investec anticipates a profit contribution from the US plant towards the end of 2016, but does not expect the same from China until the end of 2017.

However, the projects are expected to cumulatively deliver above-average growth for the company, with the Investec report stating: “The China project should also provide capacity to allow the business to more aggressively grow its top line in this globally expanding market.”​

The new phase of the growth for the Scottish company, founded in 1962, will be aided by the fact capacity restrictions will begin to fall away this year. With the China and US plants soon to be operational, Investec says the brand should be able to “make more of the structural growth opportunities”​ in the sausage and cooked meat casing market.