Investment Column: Michael Page deserves its premium rating
Victrex; UK Mail
Friday 08 October 2010
Our view: Hold
Share price: 463.4p (-15p)
Our faith in Michael Page paid off with bells on yesterday. The group released an impressive trading statement (third-quarter gross profit of £112.7m was up 37 per cent) and has more than repaid the faith of those who stuck by management's fierce resistance to an attempted takeover by Swiss rival Adecco two years ago.
Page has also served those who followed this column's buy recommendation in May well – the shares have risen by nearly 10 per cent since then. What encourages us about the stock is chief executive Steve Ingham's take on the outlook. He says the group's lead indicators (the number of job vacancies, for example) are not suggesting any signs of a slowdown, quite the reverse. Ingham, who knows the business like the back of his hand, is pretty straight as chief executives go.
And perhaps he has good reason to feel optimistic. Jobs are being created in those parts of the world where the economic outlook is broadly positive (Asia, Latin America, etc). It's more shaky in the West, not least because of the deficit issue, which is a problem just about everywhere you would care to think of. However, the business is still being sustained by churn – that is, people shifting between jobs.
That is not going away. Indeed, just this week PricewaterhouseCoopers issued research suggesting that there's going to be a lot more of it in Britain as workers who've stayed put during the downturn, wearing problems such as pay freezes and longer hours, decide that they've had enough and start looking to move on.
At 30 times 2010 forecast earnings, yielding 1.7 per cent, the shares are hardly cheap, and sit at a premium to the sector (on about 23 times). This is not undeserved: Page's management is strong, and its international reach, already very handy, just keeps on growing. At their current level, however, the shares could see some profit-taking. We would hold for now but wade in on any signs of weakness.
Our view: Hold
Share price: 1,286p (-37p)
Victrex, the world's biggest supplier of PEEK polymer, said sales were up by a whopping 64 per cent to 2,535 tonnes when it published a full-year trading update yesterday. The company was helped by a record second half. Invibio Victrex's biomaterials business, which contributes about a third of profits, also performed in line with expectations, with revenues increasing by 29 per cent to £44m.
So far, so good, then. And it is quite likely that there is to be more to come. Even allowing for the boost provided by post-recession restocking, 2010 has been a good year for Victrex. And City analysts are expecting a special dividend of anything up to £50m, probably early next year, thanks to a rising net cash position.
Next year's trading is likely to be trickier than the bumper 2010, as the benefits from the weak pound fall off and the boom from restocking normalises. Invibio could also be hit by declining healthcare budgets in both the UK and the US. But the company is well-positioned and James Tetley, an analyst at Brewin Research, believes the current price of 11 times next year's earnings estimates will not be prohibitive to a takeover bid.
The stock has added the best part of 60 per cent since our last hold recommendation. But we are with Mr Tetley when he describes the company as a "core sector holding". We think there is room for further gains in the price, before it is time to take profits and look elsewhere. So keeping holding.
Our view: Buy
Share price: 384p (unchanged)
If readers can excuse the obvious pun, UK Mail has delivered. As its cumbersome rival, the publicly owned (for the time being) Royal Mail, has struggled through union battles and political rows, UK Mail has made impressive progress, manifesting in a 27 per cent share price hike for investors in the past 12 months.
In a trading statement the group said yesterday that the first half of the year had "been satisfactory" ahead of the busy fourth quarter. The group's parcels business, the retail logistics unit and the courier division all put in strong performances.
We regard UK Mail as something of a banker. The stock continues to make steady progress, the company will continue taking business away from Royal Mail and with a generous-looking dividend yield of 5 per cent, the returns look impressive. On a price to earnings basis, UK Mail does look a little toppy, trading on 15.2 times March 2011 forecast earnings, but we would argue that the yield should soothe any fears that the stock will tread water for the foreseeable future. We continue to back UK Mail. Buy.
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