Money-makers a haven in stormy waters

By Daily Mail Reporter
Updated: 05:03 EDT, 6 August 2007

This week's column has been guest written by John McClure, of Unicorn Asset Management, the investment group with £310m under management. John runs three of Unicorn's 13 funds.

Stockmarkets have been turbulent and volatile in recent days, a warning to investors to tread carefully. At Unicorn we are sticking more closely than ever to our belief that 'fundamentals will out'. This means that, in general, we avoid investing in companies that don't make money.

The last time I wrote this column, just under a year ago, I was cautious about consumer stocks. I still take this view. Interest rates have risen, as has indirect taxation, with personal debt at record levels and home repossessions rising. With increasing raw material and energy costs I remain cautious about the prospects for consumer-related stocks.

The funds at Unicorn have very little exposure to the High Street. Our team of five investment professionals aims to seek out opportunities in the British market, with particular emphasis on smaller companies.

At present we are attracted to international companies who serve international markets, such as India and China, where we see sustained economic growth while the UK and US economies are likely to continue to slow down.

Last year I highlighted Bespak, which designs, develops and sells drug delivery technologies and services. During the year it closed its consumer dispensers division to focus the company on medical devices. As part of this process the firm is changing its name to Consort Medical, since it is now focused on proprietary medical products. Tipped at 618½p, it is now 683p.

I also highlighted Lupus Capital, at 15½p, which the former Tomkins boss Greg Hutchings is building into an international construction products business. During the year Lupus Capital grew substantially through the acquisition of Laird Security Systems. The shares closed at 16p on Friday. Osprey Smaller Companies Income Fund remains invested in both companies.

My two selections this time round meet our investment criteria and they are held by Unicorn funds.

Rotork manufactures electric actuators, fluid systems and gear boxes. Built up from the 1950s by the late Jeremy Fry, it has a track record of innovation and is a world leader in actuators (used for control mechanisms). It now has 150 sales outlets around the world, from America to the Far East.

The company recently announced first-half results which highlighted a record order book, up 23% on last year, a 19% rise in pretax profits to £26.9m and earnings per share growth of 21%. Growth at Rotork (now 1058p) is driven by growth in the oil and gas, power and water sectors on an international stage.

Despite the weak dollar, chief executive Bill Whiteley predicted further growth in the second half of the year.

Macfarlane Group, the Scots packaging distribution company, is another stock which we hold. Founded by Lord MacFarlane of Bearsden in 1949, it operates in a highly fragmented marketplace which over time we would expect to be consolidated.

With revenues of £130m last year, it also has some loss-making operations where management action is being taken to tackle the problems.

One of the attractions of Macfarlane (which closed at 30¼p on Friday) is the dividend yield of 6.6%.

At Unicorn we continue to believe that shares of carefully selected small companies represent good value and offer the opportunity for solid growth in both capital and income. In the present turbulence, that is worth having.