Share Sleuth: I was going to hit the sell button, but here’s why I changed my mind

The company’s chairman and finance director have reassured Share Sleuth that disappointing trading figures can be overcome. 

Last month’s column ended with Portmeirion on the brink of expulsion from the Share Sleuth portfolio. I feared the company, which owns popular tableware brands including Portmeirion Botanic Garden, Spode Christmas Tree and Royal Worcester, might be drifting strategically.

I have given the company a reprieve. The immediate cause for concern was the third decline in sales in South Korea in four years. South Korea is Portmeirion’s biggest market outside the UK and the US, and it seemed plausible Portmeirion’s very British brands have less enduring appeal in exotic markets than at home. The fact that Portmeirion’s recovery plan in South Korea requires new product development stoked this fear, since it seemed to imply existing products had fallen out of favour.

In correspondence, the company’s chairman and finance director have reassured me somewhat. One of the reasons why South Korean sales have fallen dramatically over the last four years is ‘grey’ imports from other export markets, which have grown strongly over the same period. By developing products specifically for Portmeirion’s South Korean distributor, the company hopes to stem the grey tide and bring about a recovery in sales.

Since the split between South Korean sales and those to the rest of the world is somewhat fungible as importers are, despite Portmeirion’s best eff orts, selling its wares across borders, I have decided to consider South Korean and Rest of the World sales together. The resulting chart shows an upward growth curve, which is more comforting.

Adding additives maker Anpario

Instead of removing a share from the portfolio, I have added shares in animal feed additive manufacturer Anpario.

This is probably the longest courtship in the history of Share Sleuth. I first visited Anpario five years ago. Its head office, the lab, factory and warehouse are all on one site in Worksop. I liked the business, which supplies natural feed supplements that boost animal health and therefore productivity. The supplements are unique and relatively pricey, but necessary because governments are clamping down on the use of cheaper antibiotics as growth promoters.

Anpario’s share price has tracked sideways, but the business has grown steadily though not spectacularly. Profit has grown faster than revenue at a compound annual growth rate of 7% over the past seven years as the company has rid itself of less profitable business (contract manufacturing for other feed companies and an organic animal feed business, for example). Revenues might pick up as Anpario focuses more and more on its speciality products.

The company has the statistical hallmarks of a good business; return on capital averaged over the past seven years is 30%, and profit margins average 11%. It has no debt, and considerable cash reserves. On 26 June I added 937 shares at a price of 337p each. The total amount invested including £10 for the broker was just under £3,168, putting about 2.5% of the portfolio’s total value at risk and bringing the number of shares held to 26.

I did raise an eyebrow at the wide spread. This is the difference between the price quoted to buy the shares (354p) through the broker and the price quoted to sell (320p). Paying 354p would immediately deliver a notional 34p loss. Brokers usually execute trades inside the spread, though, and maybe I was lucky because the actual deal price when I asked my broker was exactly half-way between the quoted price to buy and the quoted price to sell. When it is time to remove the shares from the portfolio in many years’ time, hopefully my broker can beat the spread, and the gains from the investment will dwarf the cost of buying it.

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