Which shares are pandemic survivors?

by Richard Beddard from Money Observer |

Richard Beddard evaluates two resilient firms and one business that is having to borrow to survive.

Appraising shares today for the long term requires a certain detachment from the present. It’s easier to be detached, of course, if a company has the security of a large cash surplus and supplies something we still need despite the restrictions of the pandemic, like Anpario. Next, one of Britain’s best-run retailers, though, is pitted against an intractable problem: few of us are shopping for clothes.

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Anpario

Score: 8/10, Rank: 7/31
It’s business almost as usual in Worksop, where Anpario manufactures natural animal feed additives. The pandemic is making it more difficult to meet customers face to face around the world, but Anpario seems to be getting along fine remotely, which is, of course, less costly.

Demand has increased as farmers have stockpiled, and Anpario has won new customers whose usual suppliers have failed them. Government assistance to farmers aimed at securing the food supply during the pandemic may be increasing demand for natural additives, which improve the health of livestock and the production of meat, milk and eggs. The additives are an alternative to antibiotic growth promoters, banned in the EU and the US because they encourage antibiotic resistance.

Anpario does face challenges: antibiotics are cheaper and are not banned everywhere; farmers get around the rules by using medical antibiotics; their spending power varies according to the prices of the commodities they consume and produce; and epidemics can temporarily reduce production.

Even so, Anpario is highly profitable, and although revenue growth has been modest because the company has disposed of less profitable lines of business, profit growth, which was flat in 2019, has averaged 7% in recent years. As the company opens its own offices in overseas territories, it expects to grow faster. It also has a large cash surplus, earmarked for acquisitions but currently giving the company a handy cash cushion.

A share price of 350p values the enterprise at about 18 times adjusted profit in the year to March 2019.

Next

Score 8/10, Rank 9/31
Fashion and homeware retailer Next has re-opened its online stores, albeit with a reduced service. By the time you read this it may have opened some of its larger stores, but the company is far from operating normally.

Mid-way through an ambitious change in strategy that is turning it into an online marketplace for fashion and enabler of erstwhile rival fashion brands,  the company has reassured investors by providing detailed scenario planning based on a worst case 40% reduction in sales in the year to January 2021. I’m enamoured of the strategy, but disappointed Next is effectively having to borrow more money to see it through the crisis.

Judges Scientific

Score 7/10, Rank 13/31
At scientific instrument manufacturer Judges Scientific the initial impact of Covid 19 has been minimal, but the company supplies research establishments in higher education and industry so it will not be immune to the economic consequences of the pandemic. It should, however, be resilient. Science and industry need highly sensitive instruments and Judges Scientific owns lots of highly profitable niche businesses. It entered the crisis in good financial health, with a reputation as a trustworthy acquirer of small manufacturers.

Top 5 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
9 XP Power Manufactures power adapters for industrial and healthcare equipment http://bit.ly/swXPP2019
8 RM Supplies schools with equipment and IT, and exam boards with e-marking http://bit.ly/swRM2020
8 Dart Flies holidaymakers to Europe. Trucks fruit and veg around the UK bit.ly/swDTG2019

Note: Ranked on 1 May 2020. Shares are scored out of 10, according to five criteria: profitability, risks, strategy, fairness and value. A ranked list of all 31 shares is available at https://bit.ly/sw-XFF0520

 

This article was originally published in our sister magazine Money Observer. Click here to subscribe.

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.

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