Six stocks to watch in December


2014 was a year of stability for the manufacturer of building products as it emerges from a period of self-imposed and wider construction market turmoil. In the full-year to 30 June 2014, sales dipped slightly and adjusted profit was flat.

The main question facing investors is how far the future is likely to resemble the company's past record which, though generally profitable, has been pock-marked by two years in which troubles at loss-making Alumasc Precision Components (APC) - one of two engineering companies in the group - reduced profitability.

The announcement in October that Alumasc is selling APC should herald a sharper focus on its larger and more profitable building products division. The company has an attractive niche strategy targeting products that reduce the energy cost of buildings, for example, and quotes figures showing its niches are growing faster than the industry in general.

A share price of 128p values the enterprise at about £68 million, 12 times adjusted 2014 profit. The earnings yield is 8%, putting the company on a reasonably attractive valuation.

But investors should consider Alumasc's pension obligation of £104 million, which is £18 million in deficit and a drain on cash. This year the company paid nearly £2 million to reduce the deficit, a third of operating profit, and will be paying £2.5 million a year in coming years.


Pet medicine and pet product supplier Animalcare reported full-year results in October, for the year to 30 June 2014. Revenue grew 6% and adjusted profit grew 4%. Its positive cash balance increased by 13%.

Animalcare has been consistently profitable in recent years, and strengthened its financial position despite heightened competition from rival generic pet medicine producers and the improving bargaining position of its customers - veterinary practices.

In response to the increasingly competitive market, Animalcare is tweaking the packaging and dosages of its medicines and reducing its less differentiated pet product lines. Its investment programme, dubbed Project Sustain, should start delivering products in 2017.

In the face of it Animalcare is a jam today company that also promises jam tomorrow.

If profits hold up and the company can earn higher profit margins on its enhanced generics from 2017, it is an attractive investment. But the company is doing something new, and it may not succeed.

A share price of 125p values the enterprise at £25 million, or about nine times adjusted 2014 profit. The earnings yield is 11%.


FW Thorpe's annual report is an account of a company in good health. In the year to June 2014, lighting manufacturer Thorpe increased turnover 14% and adjusted profit 11%. Its strong cash position barely changed.

The company designs and manufactures lighting, equipment, mostly for commercial customers: factories, shops, offices, schools and hospitals. It passed a key milestone in 2014, when sales of LED lighting exceeded sales of 'traditional' technologies such as fluorescent lighting, vindicating the investment it has made in product development and manufacturing capacity. Although it has yet to achieve the levels of profitability it would like from LED sales and finds the cost of maintaining two product ranges 'gruelling', it's maintaining profitability at impressive, albeit slightly diminished levels.

Despite the challenge of technological change, Thorpe is prospering, thanks probably to the far-sighted and prudent management of the Thorpe family who own the majority of the shares. As it seeks to expand sales abroad and moves cautiously into new markets such as street lighting, the company is demonstrating it can move with the times and future prosperity is largely, but not entirely, in its own hands.

A share price of 132p values the enterprise at £118 million, about 12 times adjusted 2014 profit. The earnings yield is 8%.

James Halstead

Flooring manufacturer and supplier James Halstead reported its full-year results for the year ending June 2014 in October. As usual the company was highly profitable. It raised revenue 3% and profit 4%, and increased its cash surplus in 2014, after a dip in performance in 2013 when flooring companies reduced prices to shift surplus stock. Now demand has picked up and cheaper raw material prices are offsetting the deleterious effect of the strong pound.

Talk of discounting and raw material prices is a sure sign of a competitive market, but over many years James Halstead's results tell a different story. Although customers are heavily influenced by price, the company has successfully maintained a high level of profitability.

Like FW Thorpe, the Halstead family that controls the firm has achieved a leading position in the UK market for products such as Polyflor, a commercial vinyl flooring system, by being very competent for a very long time.

Halstead developed Polyflor in the 1930s and began its overseas expansion in the 1950s. Today 43% of revenue comes from as far afield as Spitsbergen, Azerbaijan and Jaipur. Disappointingly, however, investors are well aware of the qualities of the company. The 280p share price values the enterprise at £571 million, or about 17 times adjusted 2014 profit. The earnings yield is 6%.


In the year to July 2014, reported in October, Matchtech, a recruitment company, lifted revenue 10% and adjusted profit 25%. It reduced borrowings to a very low level despite the acquisition for cash of a niche technology recruitment company.

The attraction of Matchtech is the high levels of profitability it has achieved since it floated in 2006, despite a wobble during the recession in 2010 and 2011. Profitability has yet to recover to the extraordinary levels Matchtech achieved before the recession, though – and in diversifying by setting up new businesses providing staff for professional services and workplace education, the company may have expanded into less profitable sectors.

Matchtech's 2014 annual report emphasises its niche engineering and technology recruitment businesses, almost to the exclusion of newer initiatives in other sectors. Focusing on its most profitable businesses as employment grows will bring prosperity now, but since it's already the leading UK recruiter in engineering, it doesn't tell us much about where future growth will come from.

One possibility is that Matchtech will increase the hold it has on the niches it already competes so strongly in, by dint of the superior market knowledge of its staff. Another possibility is international expansion, as Matchtech 'follows' its multinational clients abroad. International growth could prove expensive, but the company seems to be treading carefully, placing new international recruits from the UK.

A share price of 563p values the enterprise at £161 million, about 15 times adjusted profit in 2014. The earnings yield is 7%.


Full-year results for the year to June 2014 were vindication for disinfect- ant manufacturer Tristel, as new products returned it to high levels of profitability. Revenue increased 28% and adjusted profit 108%, and Tristel's cash balance increased above the value of debt and capitalised lease obligations.

Until 2011, it appeared Tristel had a stable, profitable business manufacturing detergents for endoscope washing machines in UK hospitals. But washing machine manufacturers had begun to acquire and recommend their own detergents which, coupled with revised NHS guidelines, drove Tristel out of the market.

Nevertheless, the firm has been developing products, wipes, gels, foams, and sprays for simple instruments often used in outpatient departments.

The shares have risen strongly as investors anticipate more growth, probably from overseas and new product ranges targeting veterinary practices, laboratories and cleanrooms. A share price of 75p values the enterprise at about £31 million, or 17 times adjusted 2014 profit. The earnings yield is 6%.

This feature was written for our sister publication Money Observer