James Cropper LON:CRPR, the AIM-listed, Cumbria-based paper production company has had a challenging year. But when The Armchair Trader last wrote about Cropper, its management came out defiant and sounded a confident note about the future.
And the confidence of management might be well-placed, as things have been changing direction, especially in its Advanced Materials division, which includes newly-acquired TFP Hydrogen, a manufacturer of membranes, mats and carbon veils used in the production of hydrogen fuel cells, The acquisition, as reported, took the 180-year-old paper and packaging company into the high-tech field of the Defence, Aerospace, Automotive and Construction sectors.
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Earlier today (9th December), Cropper announced that it had entered a partnership with Oxford University where the two parties will work together to develop a portfolio of next-generation battery electrodes. The focus of the collaboration will be Cropper’s advanced carbon fibre non-woven veils, manufactured by subsidiary TFP Hydrogen, and their correlation to enhanced battery performance, including faster charging times and improved efficiency.
Cropper leveraging world-class research facilities
The company, although it has its own research facilities, will benefit from the world-class R&D and analytics capabilities of the UK’s leading university who will work with Cropper to research innovative new materials. The project is drawing on funding from the Henry Royce Institute’s Industrial Collaboration Programme and the objective is to research Cropper/TFP’s products to see if they can improve battery efficiency and faster charging times.
Rob Sanders, an analyst for Shore Capital, which has James Cropper under coverage, was broadly positive regarding the Oxford University collaboration who said that it was: “an interesting project for the [Advanced Materials] division.”
Sanders did note that ShoreCap sees Cropper’s Advanced Materials as the engine for the company’s growth. He said: “[…] We have long considered AM to provide scope for significant revenue and profit progress as additional capacity is utilised in the coming years.” He noted that the recruitment of Andy Walton as managing director of Advanced Materials was a positive move from Cropper given he has a track record of delivering sales and profit growth at his previous firm, Victrex LON:VCT.
Cropper needs to turnaround revenue and profits
Walton will have to work his magic quickly. In Cropper’s last results for the six-months to end-September, published last month, revenues, although up 7% to GBP49.9m was 11.7% behind where Cropper was the year before. Again, although still in the money, with a GBP400,000 adjusted operating profit, this compared unfavourably to the year before, where operating profit was GBP3m. Management blamed this on lower revenue from the Paper & Packaging division. The Paper & Packaging underperformance was partially-mitigated by the performance of the Advanced Materials division.
Management explained that its Advanced Materials division experienced string momentum in the six-month period, especially on the back of increased Aerospace and Defence industry spending as instability proliferated across the world. The company admitted that the fuel cell sub-sector was disappointing from a sector-perspective, but its proton exchange membrane (PEM) electrolyser business saw the first shoots of recovery.
Nevertheless, the company reported an adjusted loss before tax of around GBP200,000 for the period, well-behind adjusted profit before tax of GBP2.4m for 1H24 and a loss per share of 5.1p/share, behind EPS of 19.4p/share for 1H24. With the company’s reverses, management did not recommend the payment of a dividend. In the first-half of the year management recommended a dividend of 3p/share. However, Cropper’s net debt improved marginally, down GBP200,000 to GBP13.1m between 1H24 and the latest period.
Sanders believes that Cropper’s Advanced Materials division is the cavalry coming over the hill for the paper producer. He hoped, however, that Cropper’s stated new strategy of increasingly focussing on higher-margin paper customers would benefit the underperforming part of the business and maintained, given the potential of the Advanced Materials division that: “[…] there is sufficient funding in place to deliver the accelerated growth strategy,” and still believed that the investment case of growing revenues and improving margins would: “[…] lead to a substantial increase in profit-before-tax.”
Cropper opened trading this week at 249p, down nearly 60% over one-year and down 23% over six-months. The company has a market cap of GBP22.5m
