Three quality shares that should survive and prosper in a post-pandemic world
Richard Beddard eyes quality companies for tough times ahead.
19th June 2020 10:04
by Richard Beddard from interactive investor
Richard Beddard eyes quality companies for tough times ahead.
If you believe quality will out, read on. I've investigated three high-quality shares that should survive and ultimately prosper for you this month. While all these companies promise to be good investments for patient investors, perhaps XP Power is the most compelling at current share prices.
4Imprint
Score: 6/10, Rank: 28/31
Trading at 4Imprint is probably improving now businesses are reopening in the US, where the company earns most of its revenue. In early April, though, 4Imprint reported new orders running at about 20% of the level achieved a year earlier.
The UK-headquartered company sells promotional goods: T-shirts, pens, bags, mugs and gizmos emblazoned with the logos of companies and organisations, or messages they want to promote. On its website it lists countless products sourced from other companies, which buy blank products mostly from China, customise them and ship them to 4Imprint’s customers.
4Imprint’s role in this chain is little more than recruiting customers and placing orders for them, but it has grown into a valuable business by focusing on this activity. In particular, it has developed efficient IT systems and has a reputation for excellent customer service.
Highly profitable under normal circumstances, and in possession of a substantial cash surplus going into the crisis, traders must believe 4Imprint will weather the storm. While the share price has fallen, the shares are far from obviously cheap.
Quartix
Score: 7/10, Rank: 19/31
As a provider of vehicle-tracking services to small businesses, Quartix knows exactly how much less traffic is on our roads, and from this privileged position it’s bracing for recession. So far, relatively few fleet-owners have handed their devices back, but that is partly because Quartix has suspended or deferred the monthly rental fees for about 6% of customers who have taken vehicles off the road. Although builders and manufacturers are coming out of hibernation, other parts of the economy are not, and the company says things could get much worse as the government winds down support for businesses.
Over many years, Quartix has developed a generic low-cost system, so the burden of consuming it is modest. The business model was forged in the crucible of the financial crisis, and the customers Quartix supported then remembered it as the economy recovered, sticking with the company as they grew their fleets.
Once again, Quartix, which in recent years has only lost between 10 and 12% of its customers every year, is hunkering down. Once again it should emerge stronger. Quartix estimates that even if customer attrition rates rise to 30%, it will be able to maintain its cash surplus at or above recent levels (ÂŁ8.5 million). Meanwhile, it is continuing to invest heavily in smaller-scale but rapidly growing operations in Europe and the US.
XP Power
Score: 9/10, Rank 3/31
XP Power endured a downturn in the semiconductor machinery market in 2019 and continuing trade friction between the US and China, where it has a factory. While profit was dented, the company – which makes power converters fitted into machinery produced by many of the world’s biggest industrial and healthcare equipment manufacturers – still earned a high return on capital.
Power converters are a vital component in vital equipment, since failure could shut down a production line, or halt a medical procedure. While demand may fall in a recession, particularly from industrial customers, this is likely only to be temporary as the converters are not easily substituted – they are part of the machine’s design.
The company is adapting to the geopolitical shenanigans between China and the US by keeping production for Chinese customers in China and shifting production for customers who do not want Chinese-made components to its factories in Vietnam. It is also focusing on the most efficient, high-powered converters, which few rivals have the technical ability to design, manufacture and sell.
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 |
| 9 | 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 1 June 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-XFF0620
This article was originally published in our sister magazine Money Observer, which ceased publication in August 2020.
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.
These articles are provided for information purposes only. Â Occasionally, an opinion about whether to buy or sell a specific investment may be provided by third parties. Â 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.
Disclosure
We use a combination of fundamental and technical analysis in forming our view as to the valuation and prospects of an investment. Where relevant we have set out those particular matters we think are important in the above article, but further detail can be found here.
Please note that our article on this investment should not be considered to be a regular publication.
Details of all recommendations issued by ii during the previous 12-month period can be found here.
ii adheres to a strict code of conduct. Â Contributors may hold shares or have other interests in companies included in these portfolios, which could create a conflict of interests. Contributors intending to write about any financial instruments in which they have an interest are required to disclose such interest to ii and in the article itself. ii will at all times consider whether such interest impairs the objectivity of the recommendation.
In addition, individuals involved in the production of investment articles are subject to a personal account dealing restriction, which prevents them from placing a transaction in the specified instrument(s) for a period before and for five working days after such publication. This is to avoid personal interests conflicting with the interests of the recipients of those investment articles.