Five stocks to watch in August


Full-year results to 31 March 2015 show that revenue at Castings fell by 4% and adjusted profit fell by 18%. However, if interest-bearing deposits are factored in, the company's net cash (and near equivalents) increased.

The lacklustre performance is probably just another step backwards in the company's 'two steps forward, one step backwards' progression.

However, that pattern says more about the industry Castings is in – casting and machining parts, mostly for commercial vehicles and cars manufactured in Europe – than it does about the firm's business.

As Castings had warned, its foundries produced a lower tonnage of iron castings compared with the previous year because that year was exceptional. Changes in European exhaust emissions regulations in December 2013 caused demand to spike for cheaper older lorry models that has now subsided.

The company also reported inefficiencies relating to a more complex mix of work at one of its two foundry groups, which have now been resolved following a change of management.

Its machine shop, CNC Speedwell, also operated relatively inefficiently in trying to satisfy demand both for engines meeting old emissions standards and for those meeting the new standards.

A share price of 440p values the enterprise at £165 million or about 12 times adjusted profit in 2015. The earnings yield is 8%.

Profitability in 2015 was slightly below average though, so it may not be a reliable guide to future profitability - partly because it invariably rebounds and partly because the company says it's now experiencing higher demand.

On that basis, the earnings yield is a slightly more favourable 10% (equivalent to an earnings multiple of about 10).


In its results for the year to 31 March 2015,PayPoint reported revenue up 3% on the previous year and profits up 11%. Its cash balance rose by 6%.

PayPoint consists of two businesses, but not for much longer. The profitable business, which it is continuing with, supplies bill payment terminals to tens of thousands of convenience stores. The loss-making business it plans to sell handles payments for car parks and online merchants, including well-known online retailers.

PayPoint is quitting mobile and online processing because it can't keep up with the investment pouring into rival payment systems.

Although it has rivals such as Post Office and Payzone, PayPoint is the UK's biggest payment network, making it attractive to clients – utilities, mobile phone networks and other organisations such as the BBC – that collect payments through it. It's also attractive to retailers-, who get a small commission on the fee PayPoint charges its clients.

Sitting between clients, who want to reduce fees, and shopkeepers, who want to increase commission, isn't always comfortable, but PayPoint has something they both want.

PayPoint also brings people into shops, as do the company's ATMs and Collect+ parcel drop-off and pick-up service (a joint venture with Yodel), and users often spend money on impulse purchases. The company plans to continue improving PayPoint terminals, develop new services, and expand internationally beyond the UK, Ireland and Romania.

A share price of 975p values the enterprise at nearly £641 million, or about 16 times adjusted profit in 2015. The earnings yield is 6%. Although that's not obviously cheap, shorn of its loss-making mobile and online payments division, PayPoint should be more profitable.


Latchways revealed revenues down 14% on the previous year and adjusted profit 28% lower in its full-year results for the year to March 2015. The company maintained its positive cash balance, partly by freezing capital expenditure. It's the second poor year running for the manufacturer of fall protection systems, which had previously grown reliably.

Latchways develops systems to protect workers at height: on rooftops, wind turbines, electricity pylons and aircraft wings. Some devices arrest a fall in progress while others prevent people from getting too close to the edge of a rooftop, for example, and falling off.

Longstanding chairman Peter Hearson blamed uncertainty in Europe and unspecified one-off events, probably including a slow- down in the construction of wind turbines due to legal uncertainty about feed-in tariffs (state payments to wind energy providers supplying the grid).

Meanwhile, in the US Latchways' largest customer de-stocked, implying that it had overstocked previously. This may explain why revenues at Latchways have swung from being above their natural level prior to 2015 to being way below their natural level in 2015.

Latchways says the de-stocking will come to an end soon, but it has taken matters into its own hands by beefing up its North America sales office. The cost of this affected results in 2015, but the company expects 'a significant return' from the initiative. Back in Europe, the firm stands to benefit from a resolution of the feed-in tariff issue and the pick-up in wind energy activity levels that should result.

The company describes its predicament as temporary, although it may be some time before growth resumes in Europe, as there is little sign of a recovery in general construction activity, and structures must be built if workmen are to be protected climbing them.
Judging by the share price, traders agree that a recovery of some kind is on the cards. A share price of 739p values the enterprise at £79 million, about 17 times adjusted 2015 profit. The earnings yield is 6%.


Industrial fastener manufacturer Trifast announced, in its own judgement, 'impressive' full-year results to 31 March 2015, helped by the acquisition early in the year of Viterie Italia Centrale (VIC).

Turnover was 19% higher than in 2014, and adjusted profit was 43% higher. Return on capital rose to levels last seen before the credit crunch. The company borrowed modestly to fund its acquisition.

Cash flow fell, due in part to the longer time it takes VIC to collect money from customers. Excluding the profits and costs of the VIC acquisition and significant executive remuneration costs, underlying operating profit grew by 12%.

Trifast makes screws, bolts, rivets and fasteners that hold together cars, mobile phone base stations, computer cases, cash dispensers, washing machines and similar equipment. The company believes it is 'rolling out a winning formula' based on efficient production in China and global distribution to wherever large equipment manufacturers have factories.

With less than 1% of the global fastener market and buyers consolidating suppliers, Trifast believes it has plenty of opportunities to grow.

In acquiring VIC, Trifast has taken a step towards a longstanding ambition to lessen its reliance on electronics and automotive manufacturers by increasing its supply to manufacturers in the domestic appliance market.

However, while efficient production and distribution, which allows Trifast to supply fixtures 'just in time', may protect it somewhat from customer de-stocking when economic conditions worsen, the company's profits are still likely still be susceptible to changes in demand in this cyclical market.

A share price of 125p values the enterprise at £179 million, about 15 times adjusted profit. The earnings yield is 7%.


Specialist hire company VP reported revenue up 10% on the previous year and adjusted profit up 39% in full-year results to March 2015. It lifted the return on capital to 12%, matching levels last reached in 2009.
The most impressive thing about Vp is that its return on capital has not dipped much in recent years, despite moribund post-credit crunch construction markets.

Vp is a group of equipment rental businesses that focuses on a bundle of niche markets.

Torrent Trackside, which provides equipment and services to Network Rail, London Underground and their engineering contractors, grew fastest on 2015, reporting a 34% increase in revenue. Vp's biggest division, Hire Station, which rents out tools, few by 16%.

Forklift and telescopic forklift hire firm UK Forks achieved the highest operating profit margin (22%) while growing revenue by 12%. Groundforce, which hires out excavation support and piling equipment, was also very profitable and grew revenue by 5%.

Even Vp's Airpac Bukom business increased revenue, by 6%, although demand for oil-well testing equipment fell in the second half of the year because of falling oil prices and reduced investment by oil exploration companies. Vp is circumspect about the prospects for Airpac Bucom, given the reduced levels of investment in oil and gas, but it expects to 'reap the benefits' of sustained demand in construction, housebuilding and infrastructure markets.

A share price of 770p values the enterprise at £505 million, about 17 times adjusted 2015 profit. The earnings yield is 6%.

This feature was written for our sister publication Money Observer