Five stocks to watch in July


Recruitment company PageGroup has reorganised itself into three brands – Page Executive, Michael Page and Page Personnel – that recruit at different levels of seniority.

It originally focused on finance and accounting personnel in the UK, but it has expanded geographically and by market sector over the past 25 years. The Europe, Middle East and Africa region, with a 41% share of revenue in 2012, has pushed the UK into second place. Finance and accounting produces almost half of revenue, but slightly more than half comes from other disciplines.

Chief executive Steve Ingham is testament to a meritocratic culture emphasising homegrown talent. He joined PageGroup in 1987, while five of six members of the company's executive board joined in the 1980s and 1990s. Three-quarters of PageGroup's costs are staff costs and its strategy is to invest in training, promotion and retaining talent so it can roll out its brands, "country after country, city after city, discipline after discipline".

Recruitment is a cyclical business, but the company is reluctant to cut costs (staff) – and therefore expertise and experience – when the global economy slows. So although the earnings yield of 4% is lower than some racier growth stocks, the company will almost certainly be more profitable in future.

If its average profit through the business cycle doubled from its current levels, to levels last seen before the credit crunch, an 8% cyclically adjusted earnings yield might provide sufficient return. The company has a strategy and a profitable record and, in its own words, "no debt, unfunded pension scheme, acquisition integration issues, layers of bureaucracy and burden- some fixed costs.' But that "if" is a big one.


Zotefoams' established business manufactures lightweight foam blocks from polyolefin, a simple polymer produced from polyethylene. Nitrogen gas trapped in closed cells prevents it from absorbing moisture, which is useful in impact protection and buoyancy applications. By removing more plastic from foam and components and replacing it with inert gas, Zotefoams reduces the weight and environmental impact of its products.

The company is developing and commercialising high-performance foams from more advanced polymers with additional qualities – fire resistance and temperature stability, for example – as well as foams that can be extruded or thermoformed into components for cars, airplanes, and sports equipment.

Zotefoams expects these initiatives to transform the company once its customers (converter businesses that shape the foam into products) are convinced of their benefits. Its processes are patented, so the new foams could lift profitability at Zotefoams. The company is already very healthy.

The principles of polyolefin foam production are well known, but Zotefoams says no competitor has experience producing high-quality foams at the scale it does. Competing with Zotefoams would require heavy investment. Moreover, the cost of shipping bulky foam blocks is a barrier to the global supply of foams.

Zotefoams supplies the North American market from a facility in the US, which it provides with solid plastic slabs containing dissolved nitrogen ready for foaming from its UK factory.

Zotefoams' earnings yield of 6% is relatively low, but the company is growing and in good financial condition, and it promises more growth. That may be enough to justify investing in it.


Intertek tests, audits, inspects, certifies and consults in "virtually any market worldwide".

It helps ensure the products of its customers – the biggest multinationals as well as small local companies (producing minerals, machines, consumer goods and chemicals, and offering services from cargo inspection to laboratory measurement) – are safe and perform as intended.

Intertek's revenues are split evenly between three territories: Asia Pacific, the Americas, and Europe, the Middle East and Africa. A list of customers in the 2010 annual report starts with Abbott, ends with Yamaha and includes ExxonMobil, McDonald's and Samsung.

The company has grown inexorably since it listed in 2002, but it was formed from three companies founded in the 19th century. Intertek has grown as the world has globalised, and as products and the regulations that govern them have become more complex.

The company's debt doubled after it acquired Moody in 2011 and became a force in technical inspection and certification for energy companies, but that won't be a problem unless it stops growing. More worrying is the valuation. Of this month's selection of mostly growth companies, Intertek is the most pricey. Its earnings yield is just 4%.


Like many companies, 4imprint sells pens, mugs and t-shirts customised with company logos and promotional messages to be given away as freebies in marketing, recruitment and health and safety campaigns. But it sells more direct in North America than any other company in its space.

The company claims proprietary technologies give it an advantage. It sends samples to customers in its marketing database, administrative systems link sales to suppliers and its website is optimised for search engines. Searching Google for promotional mugs and t-shirts confirms 4imprint sits high up in the rankings.

Kevin Lyons-Tarr, president of 4imprint direct marketing, turned the company's US-based direct marketing division from a catalogue-based business into a leading e-commerce site. The figures show he's doing a great job. Sales at 4imprint direct marketing rose from less than £30 million in 2003 to £169 million in 2012.

The group, which includes a smaller UK manufacturer and trade distributor, is very profitable. It's easy to build an impression that people want to work with, and for, 4imprint.

Its websites feature staff members modelling products, trumpeting their length of service and guaranteeing satisfaction. The combination of service and efficiency could turn the company into a powerful brand: an Amazon for promotional products.

Until recently, the growth of 4imprint direct marketing was obscured by more sluggish businesses that the company has gradually disposed of. Last year it sold Brand Addition and used some of the money raised to insure 20% of its sizeable pension fund liabilities.

Today 92% of the business is growing and investors have re-rated the company. On an earnings yield of just 5%, its shares are not obviously cheap, but since the pension fund is 4imprint's only significant liability, there's no obvious reason they should be.


Ultra Electronics manufactures electronic and software components and equipment, from baggage systems to weapons sub- systems, for the defence and aerospace, security, transport and energy industries.

Its biggest customer is the US Department of Defence, which accounts for 25% of sales and explains why North America is its biggest market. Ultra's second biggest market is the UK, where its most significant customer is the Ministry of Defence. The military budgets of these two big spenders are declining, though, and Ultra is looking east for growth.

It's following the classic "hidden champion" strategy by investing heavily to differentiate its products, usually system components, from the competition. Working in partnership with customers such as Boeing and Rolls-Royce, who co-fund development, Ultra seeks to become part of their "extended enterprises' supplying and servicing products for many years.

Growth comes from developing strong existing niches and acquiring new, related products and capabilities, which it can then turn into equally strong niches by developing products and relationships that shut out much of the competition.

Prior to 2012 the company had grown, despite defence budget constraints, by anticipating a shift in demand from the military resources deployed in large land operations in Afghanistan and Iraq to those required for tactical, hi-tech, unmanned systems, intelligence and networking for smaller groups of mobile ground troops.

Its presence in so many programmes means that it is relatively little exposed to those that are cut. But in 2012, the company's results were flat. On an earnings yield of 7% the shares are approaching good value for a growing company, but the defence industry is in a downward spiral and it's hard to believe Ultra will be immune to this.

This feature was written for our sister publication Money Observer