Shares in Strix Group PLC (AIM:KETL) melted 42% to 52.3p after it reported a large fall in first-half earnings and cut its dividend as a recent acquisition pushed its debt ratios higher.
Revenue of £65.2 million was up 28.6% year on year, helped by the £38 million purchase of instant-boiling and sparkling-water taps manufacturer Billi in October 2022 offsetting a reduction in organic sales, particularly in kettle controls.
Profit after tax declined 51% to £5.7 million in the six months ended 30 June 2023, mainly attributable to interest and finance fee costs due to an increase in the net debt to fund the Billi acquisition amid the higher interest rates environment.
The company expects full-year adjusted profit after tax to be in excess of £21 million, compared with the Bloomberg consensus of £25.9 million.
Strix cut its interim dividend to 0.9p from 2.75p last year, noting that the increase in net debt due and high interest rates meant it "continues to take precautions to balance the capital allocation priorities".
Broker Shore Capital said it saw a risk of a further cut to forecasts and puts its rating under review, though said it does not expect debt covenants to be breached.
"We expect net debt to remain within the 2.75x covenant threshold. The company delivered £15.6m in H1 and would only need to deliver EBITDA roughly in line with H1 in the second half to be within the limit if net debt remains close to £87m (we expect some reduction in net debt)."
Analysts at Stifel said the results were disappointing too and reduced its full year forecasts "materially".
"There is a lot to digest here, and the weak near-term news is likely to dominate the initial reaction, but the group is working hard to secure a sustainable base for long-term expansion, building on the foundations created through years of heavy investment in the core business, and the strategic acquisition of Billi (which is trading strongly, with its integration into Strix on track)."