Five stocks to watch in September
Animal feed additive manufacturer Anpario has grown in a fragmented market by selling products that make animals healthier and more productive. The company makes the ingredients in Worksop and sells them to distributors who supply the farming industry.
Its brands include acidifiers that eliminate harmful intestinal organisms such as E. Coli and Salmonella, essential oil supplements that increase the size, fertility, health and even palatability of animals that eat them, and omega 3 supplements that also improve the health of humans that eat animals fed with them.
The company's priority is to target China, where poultry and pig production is greater than in Europe. Already, international sales (excluding the UK and the Republic of Ireland ) account for 71% of the total, and the company reports strong growth in developing markets where large, progressively wealthy populations are increasing demand for food.
Producers in China are more concerned about animal health after outbreaks of avian influenza and foot and mouth disease, which may also be increasing demand for supplements.
Although it's a growth market, it's also competitive. Total annual animal feed additive sales may reach $19.5 billion (£12.6 billion) in 2017, which puts Anpario sales of £23 million in perspective.
The way to avoid the attention of the giant companies that supply additives is to find niches they've ignored. Anpario's brands, many acquired since its flotation in 2005, are doing well, but the company gives little detail about new products.
Anpario is cash rich, profitable, and growing strongly: profits rose by 49% last year and sales increased by 22%. The shares are right on the cusp of good value on an earnings yield of 7%, and this could rise a bit higher, given that the company's latest acquisition, Meriden, only contributed profit for nine months last year and that Anpario is performing strongly in 2013.
Like Anpario, Dart has grown strongly. Profits in the year to 31 March rose 32% and revenues 27%, accelerating a growth trend.
Dart's rapidly growing airline, jet2.com, and package holiday business, jet2holidays, differentiate themselves with a strong regional focus - flying people from eight northern cities, including its base at Leeds Bradford Airport - and by providing a high standard of customer service. Dart resembles low-cost pioneer Southwest Airlines in its focus on efficiency - by filling planes and keeping them in the air as long as possible - and ensuring customers enjoy the experience, over which, by selling its own package holidays, it has full control.
Dart is mostly financed by ticket sales, but advanced bookings are a fickle form of finance. While the airline is growing, cash pours in, which makes Dart's balance sheet look very strong. But if fewer customers fly, bookings fall and the business must support its fixed costs from reserves of cash or bank facilities, or by selling planes and other assets into a potentially weak market.
In addition, Dart's prospects are questionable. Although the rapid growth of jet2holidays is promising, partly because it buys flights from jet2.com, the increasing focus on holidays could unbalance the business. In 2012, 80% of turnover from leisure travel came in seven summer months, but to maximise profit the company must use its aeroplanes in winter and at night. Jet2.com sells charters in winter, and flies mail at night, but it has lost two of its Royal Mail contracts, accounting for 25% of the mail business, and it's not obvious that the airline will be able to use its planes as efficiently as the leisure airline and package holiday businesses grow.
The share price has taken off, putting investors in a dilemma. On an earnings yield of 7%, Dart is still attractive, given its growth potential, but airlines are competitive, capricious businesses, which makes growth less certain.
Stoke-on-Trent-based engineer Goodwin has responsibly tempered recent investor enthusiasm. The year to 30 April, when it raised revenue 18% and profit 58%, was exceptional, although only in magnitude - growth has been the norm for many years. Only in 2011 did the numbers reverse direction, recovering fully in 2012.
Goodwin's businesses fit into two categories: mechanical engineering and refractory engineering. The mechanical engineering division is the biggest, earning 76% of revenue. It manufactures steel castings for structural engineering projects and machines them, often into valves that control the flow of oil and gas in rigs, pipelines, refineries, tankers and terminals. They're also used in chemical, fertiliser, power and desalination plants. Patents protect aspects of the valves and the company says it leads the market.
The refractory engineering business, which supplies materials for casting metals at the very high temperatures required for jewellery manufacture, has just recovered to the levels of profit it achieved before the recession started in 2008.
The group has raised profits in areas that serve growth markets. Its biggest market is Asia Pacific, where energy infrastructure construction is most intense and jewellery is in strong demand.
Goodwin credits continuous investment for its strong growth. It is investing in larger factory units and expanding its apprentice training scheme with the help of government grants.
The company admits it might find it difficult to match this year's performance over the next few years, which is why it's paying a special 50% bonus dividend, rather than raising the normal dividend to a level it may not be able to maintain in future.
The shares are on an earnings yield of 8%, which is not obviously cheap if you focus on immediate prospects. But with a strong position in its markets, it's likely to prosper in the long term.
Engineering consultancy Hyder Consulting has performed strongly in recent years, given that it serves the construction industry, one of the main casualties of the recession in the UK and slowdowns elsewhere.
Hyder provides advice and services for the planning and management of large civil engineering projects such as road systems, bridges, buildings and power stations.
It can be difficult to differentiate consultancies, but Hyder claims its 150-year history, close partnerships with clients and focus on retaining expert staff give it advantages over the competition. It may also have reduced costs by employing engineers offshore. Perhaps most significantly, Hyder's biggest market, earning most profit, is Australia, one of the few developed economies that did not endure recession after the credit crunch.
Hyder shares have the highest earnings yield of any company joining the Watchlist this month, at 9%, but that doesn't necessarily make it best value. Its dependence on Australia - for nearly 70% of its operating profit in the year to March 2013 - is a concern.
At 5%, PZ Cussons' earnings yield is the lowest of any Share Watch company this month. Like most of the others, much of the excitement is overseas.
A lot of the overseas excitement is in Nigeria, where PZ Cussons earns about a third of its revenues. It manufactures and sells Imperial Leather soap and Morning Fresh washing powder in the country as well as popular local home and personal care brands. It also produces and sells refrigerators, freezers, washing machines and consumer electronics, through a joint venture with a Chinese manufacturer.
In another joint venture, with Irish food group Glanbia, PZ Cussons produces milk drinks and yoghurt, and it has established a joint venture to produce palm oil and food ingredients.
The UK is PZ Cussons' most significant European market, where the company claims some brands, such as Imperial Leather and Carex, are so entrenched they do not require as much promotion as competitor brands. This frees up capital for investment elsewhere.
The company increased profits by 16% in the year to 31 March, and turnover 3%, after a poor year last year. The stockmarket recognises the qualities of the company's consumer brands. People tend to stick with them and they're growing fast in increasingly wealthy countries. Enthusiasm is strong, buoyed by 40 consecutive years of increasing dividends.
Per capita GDP has doubled in Nigeria since 2000, faster and more consistent growth than in previous decades, when the economy was damaged by corruption, mismanagement and strife. But the shares look pricey, and a bet on PZ Cussons is, in part, a bet on continued Nigerian growth, which, despite the reforms, comes with risk.
When good companies offer earnings yields of less than 8%, the market begins to look pricey. All of this month's candidates for the Watchlist are close to fair value, but valuations are short-lived, quality often lasts much longer.
This feature was written for our sister publication Money Observer
The general term for the rate of income from an investment expressed as an annual percentage and based on its current market value. For example, if a corporate bond or gilt originally sold at £100 par value with a coupon of 10% is bought for £100 then the coupon and the yield are the same at 10%, or £10. But if an investor buys the bond for £125, its coupon is still 10% (or £10) and the investor receives £10 but as the investor bought the bond for £125 (not £100) the yield on the investment is 8%.
The practice of locating your financial affairs (banking, savings, investments) in a country other than the one you’re a citizen of, usually a low-tax jurisdiction. The appeal of offshore is it offers the potential for tax efficiency, the convenience of easy international access and a safe haven for your money. However, offshore is governed by complex, ever-changing rules (such as 2005’s European Union Savings Directive) and, as such, is the exclusive province of the wealthy and high-net-worth individuals.
Flotation involves a company selling a percentage of itself in the form of shares on a regulated exchange, such as the London Stock Exchange. Prior to flotation, the company is independently audited and valued and shares offered for sale at a price determined by the company’s value. After flotation, the shares are traded on the exchange for what the market deems they are worth. Shares are bought by other financial institutions and private investors.
If you own shares in a company, you’re entitled to a slice of the profits and these are paid as dividends on top of any capital growth in the shares’ value. The amount of the dividend is down to the board of directors (who can decide not to pay a dividend and reinvest any profits in the company) and they will be paid twice yearly (announced at the AGM and six months later as an interim). Dividends are always declared as a sum of money rather than a percentage of the share’s price. Although dividends automatically receive a 10% tax credit from HM Revenue & Customs (HMRC), which takes the company having already paid corporation tax on its profits into account. Dividends are classed as income and, as such, are liable for personal taxation and so shareholders have to declare them to HMRC.
The total money value of all the finished goods and services produced in an economy in one year. It includes all consumer and government consumption, government spending and borrowing, investments and exports (minus imports) and is taken as a guide to a nation’s economic health and financial well being. However, some economists feel GDP is inaccurate because it fails to measure the changes in a nation's standard of living, unpaid labour, savings and inflationary price changes (such as housing booms and stockmarket increases).