UK Edition
Questor: this livestock supplements maker is a buy: it’s a ‘low-tech sustainable growth stock’
The middle classes are taking over the world. In places such as China, India, South America and Africa, hundreds of millions of people who previously lived in poverty now earn good incomes and own assets.
One of the ways in which their lifestyles change as their finances improve is that they eat more meat – and many investors, aware of this, look for stocks that help farmers to rear livestock more efficiently.
For a long time antibiotics were routinely administered to farm animals in an attempt to prevent them from catching diseases that would reduce their value. But this practice is increasingly being banned, so farmers are looking for more natural alternatives.
One company that provides them is Anpario, an Aim-listed firm with a market value of about £100m. It describes itself as “an international producer and distributor of high-performance natural feed additives for animal health, hygiene and nutrition”.
Anpario, which was formed from a combination of three smaller British companies, has been achieving strong sales growth, especially internationally.
“It has unified its brands and this is helping it to grow its sales,” said Chris Hutchinson, whose Unicorn Outstanding British Companies fund includes Anpario as a top-10 holding.
In the first half of 2017, the most recent period for which figures are available, sales rose by 58pc in Asia, by 46pc in the Middle East and by more than 500pc in the Americas, albeit from a low base. Overall, sales rose by 39pc to £14.8m and pre-tax profits by 18pc to £1.9m.
“The way it has structured itself should allow it to accelerate international growth, as shown by US sales going from more or less zero to 7pc of turnover,” Hutchinson said. “There is every reason to believe that high growth is sustainable, given that it is only scratching the surface of international opportunities.”
He added: “This firm makes high margins, while its product formulations and its brands make it resistant to competition. It also makes much of its money abroad, which allows it to benefit when the pound is weak, especially as many of its costs are in sterling.
“Also, the balance sheet is strong, with net cash. This could allow the firm to make more acquisitions in future.” He admitted that the shares were hardly cheap, trading at about 20 times earnings, but said that as a “low-tech sustainable growth stock” it deserved a premium rating.
The chief executive and the finance director each own about 207,000 shares, worth about £910,000 each.
Questor says: buy
Ticker: ANP
Share price at close: 440p
Update: Capita
Our consistent hold rating on Capita, the outsourcing giant, has not so far been justified by events: the shares are 45.6pc below the point at which we first covered them in October 2016.
Some of the most recent pessimism in the market no doubt results from a perceived similarity with Carillion, which went bust earlier this month. But investors had also reacted badly to its interim results in September, falling by 12pc on the day.
Woodford Investment Management, which owns a significant stake in Capita, said the share price fall looked “very harsh to us in the context of Capita’s already low valuation”.
It added: “Although the results were broadly in line with expectations, there were a number of complicating one-off elements and a mixed outlook statement, which came at a time when investors were keen to see clearer evidence of recovery.”
Woodford pointed out that the yield was now more than 7pc, “which suggests that some investors fear a dividend cut may be required”. The investment firm said, with a new chief executive now in place, “clearly that eventuality cannot be completely ruled out, but having met [him] during the month we are reassured that decisions around capital structure and the dividend will be informed by a clearer long-term strategy for the business, something we expect to hear more about later this year”.
It concluded: “In the meantime, we have maintained the portfolio’s exposure to this business, seeing the potential for significant value creation as Capita is restored to the high-quality, successful and well-run business that it used to be.”
Questor says: hold
Ticker: CPI
Share price at close: 363p