Share Watch: why I don't regret hanging on to these two shares
Companies analyst Richard Beddard reviews prospects for two Share Sleuth stalwarts.
2nd October 2019 12:45
by Richard Beddard from interactive investor
Richard Beddard reviews prospects for two Share Sleuth stalwarts.
As luck would have it, two of the Share Sleuth portfolio's best performers, Games Workshop (LSE:GAW) and Dart (LSE:DTG), have published their annual reports recently. To find out more about how they have helped the portfolio beat the market, see Share Sleuth. Here in Share Watch we will consider their merits as investments now.
Neither company disappointed shareholders.
Games WorkshopÂ
Games Workshop earned 17% more revenue and 9% more profit in the year to June 2019 than the previous year – modest growth by recent standards.
Going back a bit further, the company's revenue was 117% higher than it was just three years ago. Its profit was 382% higher. The high rates of growth experienced in 2018 and 2017 were never going to be sustained, but it is a relief that the company is still growing and that its newly elevated profitability (return on capital) is persisting.
Nothing fundamental has changed about the business. It still makes fantasy models and wargames known as Warhammer and Warhammer 40,000. It still makes most of its money selling models through its own stores, independent retailers and its website. Since Games Workshop owns the rights to Warhammer characters and stories, there are no direct competitors for a hobby that delights tens of thousands of people.
But much has changed about the way Games Workshop goes about its business. It has simplified and relaunched the game systems, become much more savvy about helping, instructing and marketing to customers on the internet, slimmed down the stores to a predominantly one-person format, and made it easier to start modelling and gaming by selling keenly priced starter packs. It is preparing to make a TV series.
The only thing standing between Games Workshop and a perfect score of 10 out of 10 is its valuation. The shares cost 22 times adjusted profit in 2019, so they are not obviously cheap at £44.32. Games Workshop's score of 7.3 is a good one, but not sufficient to make it into my top five ranked shares.
Dart
On the other hand, Dart has burst into the top five. The company earns almost all of its profit from leisure airline Jet2 and its package tour operator Jet2holidays. In little more than a decade, the tour operator has gone from zero to a business turning over £2 billion, second only to TUI (LSE:TUI) in terms of how many passengers it is licensed to fly, and earning Jet2 more revenue and profit than scheduled flights to the same holiday locations.
Jet2holidays also flies all passengers on its own planes, unlike rivals who also use charter and scheduled flights. This gives Jet2 control of the journey, allowing it to tailor its service to the needs of families, a strategy that has won it many accolades.
As with Games Workshop, Dart has developed a unique business, although it is more evidently at risk from competition from online travel agents and other low-cost airlines. Further, should the pervading unease about the direction of the economy be justified by recession, demand for package holidays will surely fall, and while the UK and the EU seem to be serious about keeping planes flying after Brexit, Brexit too is a worry. These concerns probably explain why the shares are so cheap at 750p (10 times adjusted profit).
Although Dart is for contrarians, it scores 7.9.
I have reviewed two other shares this month, both just failing to make it into the top five. Cohort (LSE:CHRT) scores 7.7 and Castings (LSE:CGS) scores 7.0 out of 10. I believe all four shares merit the attention of long-term investors, and you can read more about them by following the links to our sister site, interactive investor.
Share Watch favourite five
| Score | Name | Description | Interactive Investor link |
|---|---|---|---|
| 9.5 | XP Power (LSE:XPP) | Manufactures power adapters for industrial and healthcare equipment | http://bit.ly/swXPP2019 |
| 8.4 | Victrex (LSE:VCT) | Manufactures PEEK, a tough, light and easy to manipulate polymer | http://bit.ly/swVCT2019 |
| 8 | Howden Joinery (LSE:HWDN) | Supplies kitchens to small builders | http://bit.ly/swHWDN2019 |
| 7.9 | Dart Group (LSE:DTG) | Flies holidaymakers to Europe. Trucks fruit and veg around the UK | http://bit.ly/swDTG2019 |
| 7.8 | Judges Scientific (LSE:JDG) | Buys and operates small scientific instrument manufacturers | http://bit.ly/swJDG2019 |
Note: Shares are scored out of 10, according to five criteria: profitability, risks, strategy, fairness and value.
These articles are provided for information purposes only. Â Occasionally, an opinion about whether to buy or sell a specific investment may be provided by third parties. Â The content is not intended to be a personal recommendation to buy or sell any financial instrument or product, or to adopt any investment strategy as it is not provided based on an assessment of your investing knowledge and experience, your financial situation or your investment objectives. The value of your investments, and the income derived from them, may go down as well as up. You may not get back all the money that you invest. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.
Full performance can be found on the company or index summary page on the interactive investor website. Simply click on the company's or index name highlighted in the article.
Disclosure
We use a combination of fundamental and technical analysis in forming our view as to the valuation and prospects of an investment. Where relevant we have set out those particular matters we think are important in the above article, but further detail can be found here.
Please note that our article on this investment should not be considered to be a regular publication.
Details of all recommendations issued by ii during the previous 12-month period can be found here.
ii adheres to a strict code of conduct. Â Contributors may hold shares or have other interests in companies included in these portfolios, which could create a conflict of interests. Contributors intending to write about any financial instruments in which they have an interest are required to disclose such interest to ii and in the article itself. ii will at all times consider whether such interest impairs the objectivity of the recommendation.
In addition, individuals involved in the production of investment articles are subject to a personal account dealing restriction, which prevents them from placing a transaction in the specified instrument(s) for a period before and for five working days after such publication. This is to avoid personal interests conflicting with the interests of the recipients of those investment articles.
This article was originally published in our sister magazine Money Observer, which ceased publication in August 2020.
These articles are provided for information purposes only. Occasionally, an opinion about whether to buy or sell a specific investment may be provided by third parties. The content is not intended to be a personal recommendation to buy or sell any financial instrument or product, or to adopt any investment strategy as it is not provided based on an assessment of your investing knowledge and experience, your financial situation or your investment objectives. The value of your investments, and the income derived from them, may go down as well as up. You may not get back all the money that you invest. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.
Full performance can be found on the company or index summary page on the interactive investor website. Simply click on the company's or index name highlighted in the article.