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Lightweight foam sheet material specialist Zotefoams (ZTF) is hoping to enjoy a snowball effect with its High-Performance Products (HPP) business.
It believes greater marketing investment should result in higher sales, thereby enabling it to put further resource into the business and chase even more sales.
Success could have a positive impact on earnings as HPP commands much higher profit margins versus its core Polyolefin foams business which currently accounts for 80% of its earnings.
Zotefoams believes PEBA foams could be one of the first HPP products to really catch on, based on progress made to date. It is reluctant to give too much detail on PEBA to avoid competitors copying its innovation. However, it does say the products are well suited to the sports and leisure industries.
‘PEBA is about energy management and impact protection,’ says the company. ‘If you get hit during sports, you want material to absorb the blow. Or you might want that energy returned such as insoles for football boots or pads within other footwear.’
HPP revenue grew by 21% in 2016 to just shy of £10m, representing 17% of group sales. The reported profit margin was 25% (up from 10% a year earlier) although Zotefoams tells Shares the actual margin was 30% in the second half of the year.
In contrast, the Polyolefin arm made 18% profit margin in 2016, the same as the previous year.
Shares in Zotefoams have risen by 17% to 312p since we said to buy last summer.
This article is provided by Shares Magazine. Shares publishes information and ideas which are of interest to investors. It does not provide advice in relation to investments or any other financial matters and does not guarantee the accuracy or completeness of the information in this article.
Investors acting on the information in this article do so at their own risk and AJ Bell Media Limited and its staff do not accept liability for losses suffered by investors as a result of their investment decisions. Shares is published by AJ Bell Media Limited part of AJ Bell.