Yahoo Finance Vimto maker’s bubble has been burst by rising input costs but it still holds long-term appeal
Despite the impact of a war in Yemen, a key market, and the UK’s sugar tax, Nichols recorded a new peak in net profit of £26.5m in 2019, only for Covid, lockdowns, carbon dioxide shortages and then rising input costs to slightly burst its bubble.
One result of that is a paper loss since this column bought in January 2018, partly ameliorated by 161.5p a share in dividends (once last year’s 15.3p final payment arrives in May) and mainly this column’s fault for paying 20 times that peak earnings figure.
However, the latest results at the start of the month still show a double-digit return on capital employed and a net cash balance sheet, both of which are more than enough to keep us interested.
That said, shares in the maker of Vimto and Sunkist may not roar away, given management’s forecast of flat profits in 2023, as weakness in the domestic out-of-home market offsets strength overseas. But 2022’s £2m strategic review is leading to an overhaul of supply chains and the out-of-home business, which management believes will lead to margin and profit improvements in 2024 and beyond.
In the meantime, shareholders can take comfort from the balance sheet, collect their dividends – and wait. Nichols still has long-term appeal.
Questor says: hold
Ticker: NICL
Share price at close: £10.78
Update: Just Group
A few regular readers have kindly written in to ask why this particular section of the Questor column has recently run lots of updates on existing holdings and offered very few new ideas. In response, to what is an excellent question, here is a quote from master investor and business picker Warren Buffett:
“I could improve your ultimate financial welfare by giving you a ticket with only 20 slots in it so that you had 20 punches – representing all the investments you made in a lifetime. And once you’d punched through the card, you couldn’t make any more investments at all. Under those rules, you’d really think carefully about what you did, and you’d be forced to load up on what you’d really thought about. So you’d do so much better.”
This column would not dare to claim it is in the Buffett class, but it holds his approach and methods dear: find businesses with strong, well-tended competitive positions that generate cash, have sensible management teams and whose stock comes at a sensible price. Buy, then hold on and let time and dividends do the rest. Buffett’s latest example of this is Cola-Cola, assessed in the latest annual letter to shareholders of his Berkshire Hathaway investment vehicle. Berkshire acquired its Coca-Cola stake for $1.3bn (£1.1bn) in 1994 and the first dividend payment received was $75m. Last year’s dividend income was $704m. The stake has long since paid for itself in dividends, and still in they roll.
There are not as many opportunities like this as we all might like to think, and patience is needed to both find them and then hold them for long enough to make it count. This column will not claim that Just Group is going to lead to such a multibillion-dollar bonanza, but this recent study from December ticks a lot of the boxes and last week’s full-year results show plenty of encouraging signs.
The provider of individual annuities, bulk annuities and lifetime mortgages has a strong position in its chosen niches and its products and services help to solve a problem for customers (retirement income, derisking a corporate pension scheme or cash flow release). Just Group already exceeds its regulatory capital requirements and continues to generate plenty of cash, which in turn means the company is now paying out interim and final dividends after a lengthy hiatus.
The yield is not big, at just under 2pc, but there is potential to grow the dividend over time. Best of all, the company has a tangible net asset value per share of 170p and the shares trade at barely half that, to provide combination of upside potential and downside protection (regulatory change remains an unforecastable and potential bugbear).
Just still feels like a slow-burn story, as policies written some time ago finally start to generate cash and fund further new business, so it is frankly a pleasant surprise to see the shares up by almost a fifth quite so quickly. Owning the shares for 28 years might test even this column’s patience, but it is a case of so far, so good. In Questor’s opinion, cash flow is the key at Just Group.
Russ Mould is investment director at AJ Bell, the stockbroker
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