Tortoises beat the hares: Some slow growers have served investors well, Quentin Lumsden reports

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The Independent Online
SOME OF the most successful investments are in companies that deliberately set out to grow slowly. Indeed this has almost become a morality tale in the Nineties as so many Eighties stars that went for dramatic growth have come crashing back to earth.

A marvellous example of the slow but sure approach is Manchester-based brewer Joseph Holt. In 1969, the family-controlled company had 85 pubs and made pre-tax profits of pounds 177,000 on turnover of pounds 1.375m. Over 20 years later, in 1991, it made pre-tax profits of pounds 6.4m on turnover of pounds 22.5m, yet the number of its pubs had only just broken through the 100 mark.

How did it do it? Mainly by sticking religiously to what it could do and doing it extremely well. Holt never followed the fashion for keg beers, so never fell foul of the real ale campaigners. All its pubs are within a few miles of the brewery, which keeps distribution costs down. The beer is cheap (a pint costs less than pounds 1) so there is no need to advertise. This helps keep profit margins high. There have also been good volume gains over the years, as pubs are refurbished and more are brought under direct management instead of being tenanted.

The bad news is that the shares, which have risen many-fold over the years, are priced at pounds 23.50 and so tightly held that dealing is very difficult. A stockbroker once commented that just breathing on them made the price move. But if you can buy them, they are an ideal lockaway for the cellar.

Another company which makes a habit of growing slowly is Secure Trust, a company that provides home cash-management services for its customer base in the Midlands. In the 10 years from 1982, Henry Angest, its chairman, has steadily increased the subscriber base from about 26,000 to 55,000. That is a rate of between 7 and 8 per cent a year, which may not sound much, but has supported profits growth of between 10 and 30 per cent a year. As with Joseph Holt, much of the growth has come from keeping costs ultra-tight (Mr Angest's City office is so modest that visitors have to keep changing position on sunny days to avoid being fried) and steadily raising prices. The shares have barely budged while the indices have been sliding and looking an excellent buy at 402p to yield 4 per cent.

Another company that has made money by raising prices on a steady or gently growing subscriber base is Metal Bulletin, the publisher. Its core bi-weekly publication Metal Bulletin has kept subscriber numbers steady at around 10,000 for 10 years but has increased prices to the point where it now charges between pounds 500 and pounds 800 a year.

The company's shares are riding high at 222p, partly because of the near-5 per cent yield, but also on hopes that 21 per cent shareholder Emap might try a bid one day.

An unusual company, which has been highly acquisitive but remained small, is Halma. It has a market capitalisation of pounds 238m at 165p, which is remarkable for a company with a reasonable claim to have achieved the fastest earnings growth over the past 20 years of any in the stock market. The group buys small companies with a strong market position in niche areas, many of which are environmentally related. It has persistently argued that a large acquisition would distort this strategy and make future growth harder to achieve, even though there might be a short-lived boost to earnings. It looks well placed, with operations on both sides of the Atlantic, to benefit from sterling's weakness and any economic recovery.

Druck, at a heavyweight 888p, has a specialist expertise in electronic pressure sensors, and has stuck religiously to its field since it was founded in 1972. It went public in 1982 with sales of pounds 3m and profits of more than pounds 800,000 and has grown steadily since to its latest figures of pounds 27.3m and pounds 4.7m. A cautious founder-chairman, John Salmon, admits the growth record may not be maintained in the current year, though it is early days. But with exciting new products coming through, he has no doubt the group will be fully back on course in 1993.

(Photograph omitted)

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