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Our first study of Nichols, the maker of Vimto, nearly four years ago annoyingly leaves us sitting on a book loss of around 12.5pc. However, the fault lies with us and not with the company, as we committed the sin of mistaking quality for safety and overpaid for access to the company’s profits and cash flows.
However, despite everything that has been thrown at it, including wars in the Middle East, Britain’s sugar tax and lockdowns, the company continues to deliver. We shall therefore continue to sit and wait for the cash flows and dividends to steadily accumulate.
And we can afford to wait, despite that paper loss. Nichols ended the first half of its fiscal year in June with no debt, £47.4m in cash and a small pension surplus on its balance sheet.
Better still, the business seems to be building fresh momentum as we (hopefully) start to leave the worst of the pandemic behind us. A trading statement earlier this month reported that sales for the first nine months of this year had advanced by 17pc, which exceeded management’s and analysts’ expectations.
Vimto led the charge with 36pc year-on-year growth across Africa, the Middle East, America and Europe. As a result the company raised earnings guidance for the year by more than 10pc.
It is not all plain sailing by any means. Nichols understandably highlighted the challenges posed by input cost inflation across labour, logistics and materials and declined to raise expectations for 2022. That seems prudent and analysts still expect double-digit rises in earnings and the dividend for 2022 and 2023.
That trajectory, the sound balance sheet and the company’s history of double-digit operating margins and returns on capital all merit support. That just leaves us with the knotty issue of valuation. A forecast price-to-earnings ratio of 30 can hardly be described as a bargain, even for a firm as solid and well run as this one, hence the need for patience. Hold.
Questor says: hold
Ticker: NICL
Share price at close: £13.40
Update: Fuller, Smith & Turner
The comparisons with two years ago are still not great, as we suspected at the time of last month’s analysis of Fuller, Smith & Turner, but the pubs-to-hotels group’s first-half results last week still showed a return to profit, positive cash flow and the dividend list.
That is more than enough to keep us interested, especially as the business looks very cheap on an asset-value basis, both relative to peers such as Young’s and City Pub Company and in absolute terms.
Its £408m market value compares with shareholders’ funds, or net assets, of £441m at the end of the first half, so the shares are trading below book value, which should grow as profits recover. In addition, the company has not revalued the bulk of its pubs since 1999, so that £441m figure is likely to be conservative.
The comparison with two years ago is not particularly fair either, as the first six months of the fiscal year to March 2022 featured two weeks of the last lockdown. More pertinently, momentum seems to be building. During the six months to the end of September, sales were down by a fifth against 2019 across the directly managed hotel and pub estate.
But in the first seven weeks thereafter, to Nov 13, the drop was just 10pc, to reinforce the potential for a strong recovery in the business, especially if footfall and tourism improve in central London and commuters return to the office (and by implication transport hubs’ pubs on their way home).
Net debt has come rattling down thanks to good management of working capital, April’s £52m issue of new shares and asset sales, and that further boosts confidence in the investment case, even if some of the working capital inflow may reverse in the second half. Keep buying.
Questor says: buy
Ticker: FSTA
Share price at close: 660p
Russ Mould is investment director at AJ Bell, the stockbroker
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