Gamble of the week: beaten-up smoke alarms maker

This maker of smoke and carbon monoxide alarms is a speculative punt, says Alex Williams. But its also looks excessively cheap.

Sprue Aegis (LSE: SPRP) makes smoke alarmsand carbon monoxide detectors. Its shares have halved in the last month from 269p to 120p, after a fault with its batteries was revealed. Warranty payments usually cost the company under £1m a year, but it is now budgeting for the figure to spike to £6.8m, equal to a full year's profit. "Dodgy batteries" mean the British firm expects a "deluge of guarantee claims from irritated customers", says the Daily Mail. Managing director Nick Rutter, who co-founded Sprue in Coventry in 1998, has seen over £4m wiped off the value of his own shares.

But electrical goods can be a lucrative market. New legislation forces private landlords to fit carbon monoxide detectors and Sprue supplies B&Q, Tesco and Amazon. It also has public-sector contracts, supplying 90% of alarms bought by the UK's fire brigades. Revenue has grown yearly for more than a decade, hitting £88m in 2015.

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