Latest news with #FTSEAimAll-Share
Telegraph
25-04-2025
- Business
- Telegraph
Be smarter than the stock market herd. Buy for the long term
Questor is The Telegraph's stock-picking column, helping you decode the markets and offering insights on where to invest. Investors often struggle to go against the stock market herd. It is far easier to buy shares when everyone else is and the stock market is booming, rather than make purchases following a period of decline that prompts weak sentiment. However, in Questor's view, buying shares when other investors are doing the opposite provides scope for significant long-term capital gains. It allows investors to purchase high-quality companies at discounted prices that may not fully reflect their intrinsic value or growth potential. With UK smaller companies particularly unpopular at present, this column believes there are several attractive buying opportunities for contrarian investors. Indeed, the FTSE Aim All-Share index has slumped by 14pc in the past five years. The FTSE 100 index, which itself has grossly underperformed other major global indices, is up 46pc over the same period. Within UK small caps, companies such as Judges Scientific appear to offer good value for money on a long-term view. Shares in the designer and producer of scientific instruments have fallen by 44pc in the past year, with the company's recently released annual results showing disappointing financial performance. Revenue, for example, declined by 2pc versus the prior year, while operating profits slumped by 20pc due in part to a tough trading environment.
Telegraph
04-04-2025
- Business
- Telegraph
Inflation made this success story go flat – but the future looks promising
Questor is The Telegraph's stockpicking column, helping you decode the markets and offering insights on where to invest. Consumer-focused stocks have endured a torrid time over recent years. Rampant inflation and fast-paced interest rate rises have combined to put household budgets under significant pressure. This has encouraged consumers to cut back on discretionary items and trade down to cheaper own-brand products. It is therefore unsurprising that shares in beverages company Fever-Tree have slumped since being added to our Aim portfolio in October 2023. They have fallen by 19pc, versus a 1pc decline for the FTSE Aim All-Share index, as tough trading conditions have weighed on the company's financial performance. Indeed, the firm's recently released annual results showed that sales rose by just 3pc year on year. However, lower materials costs and falling freight rates meant that the company's gross profit margin rose by 540 basis points to 37.5pc. This caused the firm's earnings per share to increase by a far more impressive 82pc versus the prior year. Further profit growth, however, is not anticipated in the current year. In fact, Fever-Tree is forecast to post a low single digit increase in revenue and a 6pc decline in earnings this year as its dominant US division, which accounts for 35pc of sales, transitions to a long-term strategic partnership with Molson Coors. Outside America, the company expects to deliver further profit margin growth this year as it benefits from a strong competitive position. Indeed, during 2024, the firm gained market share across all of its key regions. This suggests it is becoming increasingly well placed to capitalise on an improving consumer outlook. Although inflation remains above target in the US, Europe and the UK, which together account for 91pc of the company's sales, it is widely expected to fall to central bank targets over the medium term. This should provide scope for further interest rate cuts that, alongside modest price rises, prompt improved spending power among consumers. In turn, this is likely to have a positive impact on demand for premium discretionary products such as those sold by Fever-Tree. An increasingly upbeat industry outlook is reflected in the company's financial forecasts for next year. It is expected to post a 19pc rise in earnings per share in 2026, with investors already beginning to factor in a rapidly growing bottom line. The company's shares have risen by 16pc since the start of the year and now trade on a price-to-earnings (P/E) ratio of 27.8. While this is clearly expensive, especially relative to many UK-listed smaller companies, it does not represent an overvaluation in Questor's view. The prospect of further rapid profit growth amid a buoyant long-term consumer outlook means the stock is worthy of a premium valuation vis-à-vis the wider stock market. Furthermore, Fever-Tree has solid fundamentals that help to justify its lofty market valuation. For example, its net cash position increased from around £45m to nearly £84m last year. This suggests it has the financial means to overcome further consumer-related challenges in the short run. In addition, a return on equity figure of 10pc, achieved despite the use of very modest leverage, highlights its competitive advantage and status as a high-quality business that enjoys significant brand loyalty. Separately, the firm is making progress in diversifying its product portfolio. Indeed, 45pc of the company's sales are now derived from products other than tonic water. This is five percentage points greater than in the previous year and equates to a more reliable long-term financial outlook as consumer tastes inevitably change. In the short run, the company's share price performance could be boosted by a £100m buyback programme. However, its market valuation is likely to remain relatively volatile as above-target inflation and a restrictive monetary policy take time to pass. And with the company viewing 2025 as a transitional year as its partnership with Molson Coors is implemented, Questor would be unsurprised if recent share price growth fails to be replicated over the coming months. Still, Fever-Tree's long-term prospects remain sound. Its growing market share means it is well placed to take advantage of an improving industry outlook as consumer demand for premium discretionary products increases. And, while its P/E ratio is undoubtedly high, the company's solid fundamentals and upbeat earnings growth outlook mean it remains a worthwhile purchase.
Telegraph
14-03-2025
- Business
- Telegraph
An uncertain economic outlook has upended these firms' share prices
Questor is The Telegraph's stockpicking column, helping you decode the markets and offering insights on where to invest. Accurately forecasting a company's financial performance is never easy, but it is proving to be particularly difficult at the moment. This is largely due to an uncertain near-term economic outlook that has resulted in highly changeable operating conditions for a wide range of firms. Indeed, the timing of interest rate cuts is proving extremely unpredictable given inflation's recent upward trend and the economy's anaemic growth rate. Investors must therefore accept that the share prices of companies from a variety of sectors, particularly those which are reliant on UK consumers, are likely to be more volatile than would normally be the case as stock market participants react to earnings surprises. While this may dissuade some investors from buying shares, in Questor's view, it is unlikely to be of great significance to long-term investors. After all, elevated share price volatility does not equate to a greater risk of permanent capital loss. Of course, a negative earnings surprise still represents a mild disappointment for any investor. For example, Sanderson Design, which is a holding in our Aim portfolio, recently released a full-year trading update that showed its financial performance is set to fall behind the firm's previous expectations. The interior design company stated just over a year ago that it expected profits for the 12 months to January 2025 to be relatively unchanged versus the prior year. However, its forecasts have gradually come under pressure over recent months. Indeed, in its latest trading update for the 2025 financial year, which was released in January, the firm stated that it now anticipates pre-tax profits will fall from £12.2m in 2024 to £4m-£4.8m in 2025. This decline has largely been caused by a weak consumer environment in its key UK market. The company's deteriorating financial prospects have prompted a slump in its share price of around 55pc over the past year. Over the same period, the FTSE Aim All-Share index has declined by 26pc. Clearly, Sanderson Design could continue to experience challenging operating conditions. Rising inflation and an ongoing restrictive monetary policy may cause a further cost-of-living squeeze that reduces demand for its products. However, with the firm expecting to have a net cash position of around £5m at the end of its 2025 financial year, it appears to have a relatively sound balance sheet through which to ride out a tough trading environment. Moreover, its forward price-to-earnings ratio of around 10 suggests its shares offer a margin of safety and that investors have priced in the prospect of further challenges. Therefore, the stock will remain in our Aim portfolio. Although it is at the riskier end of the investment spectrum, it nevertheless continues to offer long-term growth potential due to the likelihood of improved operating conditions as inflation ultimately falls and interest rate cuts continue. Questor says: hold Ticker: SDG Share price at close: 48p Update: Inspecs Another of our Aim portfolio holdings, Inspecs, has also struggled to meet its previous financial guidance. The designer and manufacturer of eyewear released a full-year trading update in January, which stated that revenue for the 12-month period is now expected to be just over £200m. This is down on the firm's original expectations and represents a 1.4pc decline versus the prior year. Encouragingly, the company was able to grow its gross profit margin by 50 basis points to 51.4pc during the year. It is aiming to deliver a further improvement in profit margins during the current financial year, with its performance in the US relatively strong of late. The firm also continues to use only a modest amount of leverage, with its net gearing ratio amounting to around 35pc at the time of its half-year results. With its shares currently trading on a price-to-book ratio of around 0.5, it appears to offer a margin of safety after declining by 80pc since being added to our Aim portfolio in July 2022. This compares with a 22pc fall for the FTSE Aim All-Share index over the same period. Clearly, shares in Inspecs could come under further pressure if its financial performance fails to improve. While it remains a relatively high-risk opportunity, its low valuation means that it retains its place in our portfolio.
Telegraph
21-02-2025
- Business
- Telegraph
This stock has made 231pc returns – and there's plenty more money in it
Questor is The Telegraph's stockpicking column, helping you decode the markets and offering insights on where to invest. The abysmal performance of UK smaller companies has prompted widespread disillusion among investors. Indeed, it is difficult to retain a positive outlook on the prospects for small-cap stocks when the FTSE Aim All-Share index has declined by 26pc over the past five years. Even the perennially underachieving FTSE 100 index has risen by 17pc over the same period. However, there have been some success stories among the deluge of underperforming UK-listed smaller companies. Volex, for example, has surged by 97pc in the past five years. It is up by 231pc since being added to our Aim portfolio in August 2018, with shares in the manufacturer of power cords and cable assemblies outperforming the FTSE Aim All-Share index by 265 percentage points. The company's recently released trading update showed that sales rose by over 21pc in the first nine months of its current financial year. This figure was boosted by the impact of acquisitions, which made up the bulk of the increase in revenue, while the firm's organic sales growth (which excludes the impact of acquisitions) was roughly 10pc. Encouragingly, the company reported that profit margins in the nine-month period had been maintained year on year due to successful cost management and price increases. As a result, it is on track to report financial performance for the full year that is in line with previous guidance. Given the company has a net gearing ratio of 58pc, it would be unsurprising if additional acquisitions lie ahead. It doesn't, however, intend to make an offer for TT Electronics after its initial proposals were rejected. As a result, it has sold its holding in the business. Volex's modest debt levels also mean it is well placed to overcome potential challenges amid an uncertain period for the world economy. The firm's presence across a diverse range of geographical locations further reduces overall risk, while providing a potential catalyst for top and bottom-line growth over the coming years due to its exposure to faster-growing economies. Indeed, around 42pc of the company's sales in the first half of the year were generated in North America. Given that the IMF currently forecasts the US economy will expand at an annualised rate of 2.4pc over the next two years, versus 1.6pc for the UK economy, this could boost the company's chances of outperforming the domestically-focused FTSE Aim All-Share Index. Despite its strong past performance, Volex continues to trade on a relatively attractive market valuation. It has a forward price-to-earnings (p/e) ratio of 9.6, for instance, which suggests it offers a wide margin of safety and scope for further capital gains. Clearly, the stock's price could prove to be volatile as geopolitical and economic risks remain elevated, but with a solid financial position and growth potential, it remains a worthwhile long-term holding. Questor says: hold Ticker: VLX Share price: 273p Update: SDI While Volex's share price has soared over recent years, our holding in SDI has proved to be a major disappointment. The company, which acquires businesses that design and manufacture industrial and scientific products, has recorded a 63pc share price decline since being added to our Aim portfolio in January 2023. This compares with a 18pc fall for the FTSE Aim All-Share index over the same period. The company's latest interim results showed that it is experiencing challenging trading conditions in the life sciences and biomedical markets. This caused a 4pc decline in sales during the six-month period, although the company was able to increase its gross profit margin by 2.4 percentage points to 65.4pc. As a result, it remains on track to meet financial guidance for the full year. The company completed the acquisition of InspecVision for £6.1m during the first half of the year. Given that its net gearing ratio amounted to 51pc at the time of its interim results in October, it appears to have the financial capacity to make further acquisitions over the medium term. Trading on a p/e ratio of 10.6, shares in SDI offer a margin of safety. Although further stock price weakness cannot be ruled out in the short run, the company continues to merit its place in our portfolio on a long-term view.
