Investment Column: Victrex is more exciting than you think

Armour; Matchtech

Edited,Nikhil Kumar
Friday 08 April 2011 00:00 BST

Our view: Buy

Share price: 1,439p (-9p)

Polyether ether ketone. Not, perhaps, a phrase to cause a widespread spluttering of cornflakes and grasping for investment portfolios. But possibly it should be.

Victrex, the FTSE 250-listed group which was spun out of ICI in the 1990s, does nothing but polyether ether ketone, helpfully shortened to Peek. The group's factory near Blackpool produces the hard-wearing polymer in a vast array of shapes, sizes and varieties for use in everything from aircraft and electronics to artificial hip joints and vertebrae.

According to yesterday's six-month trading update, the company has seen record sales of 1,434 tons, up by a whopping 22 per cent compared with the previous financial year. Its Invibio business – which sells higher-grade Peek for use in medicine, for example – also hit record revenues of £24m, up by 10 per cent.

After a nasty recession as de-stocking across all industrial sectors demolished Victrex's sales, the group's shares have made some tidy progress, soaring by 27 per cent thanks to the sales boost from post-recession re-stocking and year-end financials reporting £77.3m in cash, no debt and a special dividend of 50p per share.

But the current strong numbers are not just a comparison with the doldrums. There are significant growth opportunities ahead.

Specifically, Victrex is working on expanding the uses of Peek in Boeing's delayed Dreamliner. Moreover, there is also plenty of scope for using Peek as a steel substitute in the oil and gas industry, plus growing interest from the transportation industry as car and aircraft makers scrabble to improve fuel efficiency by reducing weight.

Victrex's shares were off slightly yesterday, dragged down by the wider market and also by the absence of any clues on capacity expansion in the trading statement. Never mind such subtleties. Victrex has bags of potential, even with the widely predicted softening in the second half thanks to tougher comparisons and the drag from the special dividend.

As Numis analysts put it yesterday: "This remains a high-class growth company which deserves its premium rating." We agree.


Our view: Sell

Share price: 4.5p (-1.13p)

Despite its name, Armour Group has nothing to do with protective equipment, though the beleaguered company could do with a little fortification as it faces the brutal chill that has set in across the retail sector.

The company makes hi-fi and home-cinema equipment, including speakers and cables, as well as audio and visual equipment for cars. Its products can be found all over the high street, from John Lewis to Tesco and Halfords. While its automotive business has continued to grow, the larger home division has suffered.

Britain is its core market, with 80 per cent of the business based here. In yesterday's update, Armour said conditions "are difficult and have deteriorated significantly over the last six weeks". No surprise, then, that the stock has suffered in recent weeks.

The group expects the consumer electronics market "will continue to be weak for the remainder of this year". Bosses have launched a strategic review and set about slashing cost and stock. Chief executive George Dexter believes the quality of goods will see Armour recover in 2012, but admitted it would take some time for the stock to recover. We think he is right, and would stay away for now.


Our view: Buy

Share price: 209p (-3.5p)

Investors in Matchtech, the staffing firm whose shares suffered a sudden tumble after it warned on full-year profits in February, must have been relieved when the company issued its interim results yesterday.

There were no nasty surprises, and the update suggested that there had been some improvement, particularly in Matchtech's newly launched professional services brands.

In response, analysts, who had revised forecasts at the time of the profit warning in February, stuck to their estimates. Peel Hunt also highlighted the fact that the company boasts a strong balance sheet, which should hold it in good stead as performance improves.

It is also worth noting that the recent pullback has left the stock on a fairly thin valuation of less than nine times forward earnings, which, when coupled with the strong 7 per cent forecast yield, makes us conclude it might be time to wade in.

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