Three shares reviewed: why popularity comes at a price

Richard Beddard considers how a trio of different businesses are faring through the pandemic.

20th July 2020 15:30

Richard Beddard from interactive investor

Richard Beddard considers how a trio of different businesses are faring through the pandemic.

This month, we look at two companies that will endure a significant loss of income due to the pandemic, and a third that could sail through pretty much unscathed. Companies that are prospering are both rare and popular, but popularity comes at a price.

Bloomsbury Publishing

Score: 7/10, Rank: 15/32

Probably since before the publication of the seven Harry Potter novels in 2007, people have wondered how Bloomsbury would plug the gap in its earnings if interest in the franchise should wane. The good news is that it hasn’t waned much. Eight films concluding in 2014, the 20th anniversary of the first book in 2017 and the natural cycle of parents introducing children to books they treasured when they were young have kept interest alive. Bloomsbury feeds the Harry Potter fandom with box sets, illustrated editions and other spin-offs, keeping profits flowing.

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While Harry Potter is a lucrative source of income, it is no longer a reliable engine for growth, so Bloomsbury has spent the Potter annuity on other titles for its children’s, adult and specialist divisions. Through perhaps two dozen acquisitions, it has also built up an Academic & Professional business. The organisation of disparate publications, mainly in the arts and humanities, into collections and their subsequent digitisation have created a second significant profit centre, one which relies on regular income from universities rather than finding the next blockbuster.

The closure of bookshops during the pandemic will severely dent revenue in the current year and Bloomsbury will face challenges if academic funding tightens, but the business itself may be growing more resilient as each year goes by.

Churchill China

Score: 7/10, Rank: 11/32

For the last four months, Churchill China has been a terrific business without a market. Until coronavirus closed pubs and restaurants, business was booming, as it had been for the best part of a decade.

Churchill China makes tableware, and it set itself on a course for prosperity when, perhaps two decades ago, it decided to focus on the hospitality industry. Its durable plates, made using clays and processes developed over centuries, were prized, and it could generate repeat business from busy commercial kitchens.

Until quite recently, customers favoured plain white tableware, but Churchill China found a way to add colour and texture to the plates without adding much cost. The company likes to say these decorated plates “frame the food”, and their popularity has delivered its prosperity.

Pubs and restaurants are reopening, but their prospects are very uncertain. While cash-strapped caterers are unlikely to rush to buy tableware, Churchill China’s long-term prospects are probably good. The product is in high demand in normal times, and it has a very strong balance sheet that should see it through hard times.

RWS

Score: 6/10, Rank 27/32

Translator RWS has given investors little to worry about during the pandemic. It specialises in translating technical documents, primarily patents, documentation for drug and medical device companies, and the localisation of software and marketing - often for technology companies. Healthcare and technology are two sectors profiting from the pandemic, business is brisk, and RWS has so far only reported a slight lull in patent work.

Basic translation can be done far more efficiently by computers, and as accuracy improves machine translation could threaten RWS, which has traditionally employed an army of freelancers. That’s why the recent acquisition of Iconic, a machine translation platform, may be significant. RWS hopes to turn automation to its advantage, allowing it to translate the increasing volumes required by its big multinational customers after two decades of prodigious growth.

Despite such resilience, RWS scores 6/10, less than Bloomsbury and Churchill China, because of its share price, which at 594p is about 27 times adjusted profit also adjusted for debt. In contrast, Bloomsbury’s multiple is 11, and Churchill China’s is 12.

In the current market, it seems, you cannot have your cake and eat it.

Top five ranked shares

Score	Name	Description	Interactive Investor link
9	Dewhurst	Manufactures pushbuttons and other components for lifts and ATMs	http://bit.ly/swDWHT2020
9	Victrex	Manufactures PEEK, a tough, light and easy-to-manipulate polymer	http://bit.ly/swVCT2020
8	XP Power	Manufactures power adapters for industrial and healthcare equipment	http://bit.ly/swXPP2019
8	Anpario	Manufactures natural animal feed additives	http://bit.ly/swANP2020
8	RM	Supplies schools with equipment and IT, and exam boards with e-marking	http://bit.ly/swRM2020

Note: Ranked on 2 July 2020. Shares are scored out of ten, according to five criteria: profitability, risks, strategy, fairness and value. A ranked list of all 32 shares is available at https://bit.ly/sw-XFF0720

This article was originally published in our sister magazine Money Observer, which ceased publication in August 2020.

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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.

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.

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