Innovative Israeli tailor Bagir (BAGR:AIM) has fashioned a return to profit and reverted to material sales growth, news that sees the shares stitch together a 21% gain at 4.69p.
Forward-looking investors are pinning hopes on the upbeat outlook statement too, Bagir ‘now focused on executing its strategy for growth during 2017 'and beyond’.
Click here to read full year results from Bagir, which makes suits, jackets and trousers under retail private labels and under world-renowned brands. The numbers clearly highlight the positive effects of management’s recovery plan.
A significant loss was reversed to generate positive earnings before interest, taxation, depreciation and amortisation (EBITDA) of $1.6m in 2016.
MAGIC MAKEOVER
The recovery reflects significant margin improvement, a 30% reduction in overheads across the group and reorganisation of production to focus on sites in low cost Egypt, Vietnam and Ethiopia, where Bagir is investing to expand capacity.
Lower sales of $64.1m (2015: $75.2m) mainly reflect the legacy impact of reduced sales from former largest customer Marks & Spencer (MKS), although CEO Eran Itzhak believes ‘we are now a stronger business than we were three years ago having been through such a rigorous process.’
‘The proof now will be in our ability to win new high volume retail clients and the early signs are good having secured new contracts with H&M and Haggar Clothing, new recruited customers in both the US and the EU and we are holding promising discussions with several further significant potential clients.’
POSITIVE OUTLOOK
‘Bagir is having promising discussions with a number of well-known international retailers for new orders,’ says N+1 Singer’s Matthew McEachran. ‘This gives management confidence it will achieve significant revenue increases, albeit they may be slightly more weighted towards 2018.’
Besides Bagir’s improving growth prospects and earnings quality, investors like the lower risk profile of the business, the balance sheet transformed to a net cash position with no bank debt following two 2016 placings which pulled in $10.3m.
‘The group has significantly reconfigured geographic production positioning it for significant growth, especially from the financial year to December 2018,’ continues McEachran. ‘Ethiopia has grabbed all the headlines given Bagir has a unique advantage there, but other changes are positive too.’
‘It has lower cost production after relocating in Vietnam (ahead of likely EU changes to duty-free status), and demand in Egypt is being helped by FX devaluation. There is also additional potential from the US if retailers de-risk away from Mexico ahead of potential duty-free status changes there.'
