How Yorkshire companies can bring rich rewards for investors
It was initiated by the Yorkshire Ridings Society in Beverley in 1975 as a protest movement against local government reform. This year the seaside town of Whitby is host to the official activities.
Yorkshire is home to some of the UK’s largest companies – notably Croda International (£6.6bn), Morrison Supermarkets (£4.8bn) and Persimmon (£6.4bn) – but also to 23 other firms quoted on the main London Stock Exchange and 45 on the Alternative Investment Market (AIM).
According to wealth manager Brewin Dolphin, the top performers over 10 years on the main market were Cranswick 456.5 per cent, Croda 1,064 per cent, Kcom 583.5 per cent, Marshalls 1,089 per cent, MJ Gleeson 1,383.4 per cent, Persimmon 683.5 per cent and VP 728.5 per cent.
Croda is the giant in the county. It was founded in 1925 when an abandoned waterworks was acquired to extract lanolin from sheep’s wool. It bought United Premier Oil in 1967 and today this speciality chemicals company is the UK’s second largest manufacturer of cosmetic ingredients. It is based at Snaith, near Goole.
“Croda is one of Britain’s best kept corporate secrets,” says Lee Wild, head of equity strategy at Interactive Investor, adding: “It’s unlikely the man or woman on the street has ever heard of it but the company makes over £300m profit every year.”
Adam Martell, of wealth manager Charles Stanley, says the firm has benefitted from a lower oil price over recent years, adding that “the balance sheet remains strong, suggesting there is further room for enhancing returns to shareholders”. Croda recently purchased Finland’s IonPhasE, a maker of anti-static additives for plastics, for 24m euros.
Wild says that whilst Croda shares are not inexpensive, profits are growing and the management has a flair for making acquisitions which is a potential catalyst for further upside over the long term.
The power business, Drax, is tipped by Adrian Lowcock, head of personal investing at adviser Willis Owen. He says that although it is in an “unloved sector of the market”, its 5.4 per cent yield and low levels of debt are attractive. It recently increased its dividend by 15 per cent and completed a £50m share buy-back programme. Drax has reported progress on strategic initiatives, such as its biomass operations, and continues to focus on cost reduction.
Morrison’s started as a Bradford market stall, selling butter and eggs. It was built up by Sir Ken Morrison and has become the fourth largest supermarket with almost £5bn capitalisation.
“Given that it operates in the ‘value’ sector, it is arguably the most vulnerable of the majors to the advance of the discounters, such as Aldi and Lidl,” warns Martin Payne, senior investment manager at Brewin Dolphin. Declining sales since 2015 are clear evidence. Under a new chief executive, David Potts, its 140 ‘M’ convenience stores have been sold and his turnaround strategy appears to be working. The share price is not cheap but, Payne notes, Morrison’s has the lowest level of leverage among its peers and a fully covered dividend, yielding 3.2 per cent.
Clipper Logistics of Leeds provides logistics and services to retailers, notably in mail order. Adam Martell says they have met the managers on several occasions and were particularly impressed with the business model which is focused on ‘click and collect’.
The firm is very cashflow generative, typically paid in the month they do business, even by Asda and Tesco. “Structurally, increased internet shopping is boosting sales, both in distribution and returns,” says Martell. Clipper will ‘refresh, clean and repackage’ an item to make it available for resale very quickly. It is valued at £266m and yields 3.4 per cent.
Marshalls of Elland, south of Halifax, is a hard landscaping manufacturer. Wild says it is a “very well-run business” and its management is adept at spotting which parts of the construction industry are growing and avoiding those which are not.
Currently, Marshalls like new-build housing and infrastructure including motorways and Crossrail.
Much of its client base is the older homeowner who benefits from pension release, which makes it more resilient to economic fluctuations. They are also more likely to invest in their garden than extend into the loft. The shares are no bargain but a string of sound results justifies optimism in the company’s future.
York-based Persimmon is a major housebuilder but it has attracted headlines for poor customer service and excessive payments to senior staff. “It feels like the end of the current cycle has been reached. Gross margins are close to the top and, whilst build-cost inflation is likely to outstrip house price inflation, Persimmon should be able to maintain operating margins,” says Payne.
The firm has over £1bn cash and the yield at 5.2 per cent is attractive even if capital growth may be limited.
Card Factory of Wakefield has “remained bullish despite the growing challenges facing the high street”, says Saul Fulda of broker Redmayne Bentley. Founded in 1997, the firm sells greetings cards, gifts and balloons for special occasions. Pre-tax profits fell 7.3 per cent last year but its 972 stores showed 6.4 per cent uplift in the second quarter.
Fulda says that with debt falling, sales increasing and 50 new stores planned, “Card Factory could be undervalued”, although he warns that the 5.4 per cent dividend may not be sustained.
International Personal Finance, a Leeds-based home credit and digital lending company, was founded in 1997 and quoted a decade later. Although its profits after tax jumped from £36.6m in 2017 to £75.4m last year, Lowcock notes that it has been out of favour for some time but dividend seekers can enjoy a yield of almost six per cent. IPF suffered a blow recently when the Polish government tried to limit loan charges.
An alternative way to invest in Yorkshire-based companies is through a collective. This both reduces risk and volatility. Leeds-based YFM Equity Partners, led by David Hall, are the investment advisers for two Venture Capital Trusts: British Smaller Companies VCT and British Smaller Companies VCT2, launched in 1996 and 2001 respectively.
VCTS are publicly quoted funds on the London Stock Exchange and bring several benefits: no income tax on dividends, no capital gains tax when sold and 30 per cent tax relief on investments up to £200,000 each year when shares are purchased in a new offer. YFM has over 30 years’ experience of investing in and transforming growing smaller firms. They have over £70m of available funds and invest up to £10m of equity in established UK business across all sectors.
Wakefield Acoustics, a leading manufacturer of advanced industrial and environmental noise-control systems, is one of its ongoing investments, receiving around £1.8m in December 2014. YFM backed the management team.
Finally, Fulda says savers looking for a regional company with corporate social responsibility at its core could opt for Town Centre Securities whose properties include the Merrion Centre in Leeds.