Date: Wednesday 09 Oct 2013
LONDON (ShareCast) - Polyether ether ketone (PEEK), never heard of it? For the ignorant, it is a thermoplastic. Yes indeed, it goes into smartphones, cars, aircraft — about a tonne in each Boeing Dreamliner — and into medical products such as spine strengtheners and dental plates that are put into the human body. Victrex, one of its manufacturers, was bought out of ICI for 15m pounds two decades ago. Now the global market is worth about 1.3bn pounds - talk about "residual long-term income growth." The company´s Blackpool factory doesn´t just make the stuff, it also markets it.
Interestingly, the material also goes increasingly into oil and gas installations as pipes. While the firm has faced headwinds, those have now abated. The company should start to grow volumes at its expected rate of up to 10% a year thereafter. It is also in the process of expanding its production capacity and the long-term trends are favourable. The principal risk is that someone comes up with a cheaper alternative to PEEK. The shares, off 15p at 1,549p, have done little over the past year or so. On 17 times earnings, they are not cheap compared with the rest of the sector but look good long-term value, The Times´ Tempus says.
As one saying goes, one hand washes the other. For the better part of the past few years junk bonds have been an issuer´s market as lower interest rates drove demand for yield. But investors have done well so far as well, earning returns of 7% over the last 12 months, according to Barclays data. However, they have had to accept riskier structures due to the introduction of several issuer friendly features. Burlington Stores is a case in point, it plans to redeem about half of a Feburary bond issue - which included a so-called "pay-in-kind (PIK) Toggle. Even so, the holders of the debt will come away with an annualised return of about 12%, which is none too bad for a short-term investment. Things worked out for everyone this time around. Burlington had a hit equity offering and has not had to toggle the bonds. Boom times in the capital markets are very forgiving. They do not last, the FT´s Lex column says.
In defiance of any logic, shares of recruitment companies - such as Robert Walters - performed strongly this past Autumn. The company´s shares have risen all the way to 311.5p. That suggests that a significant and imminent upturn in the market for recruiting senior staff is already built into that share price. The worry is that so far the signs of any such upturn are limited. Despite that, the stock trades at about 40 times next year’s earnings, on the assumption that anyone has any idea what they will be.
The company does have all the building blocks in place to take advantage of an upturn. As well, profitability per employee can potentially rise by 50% once the market is firing on all cylinders, and three quarters of that extra fee income drops straight through into profits. However, the third-quarter trading statement, while showing improvements in net fee income in all its regions for the fourth consecutive quarter, does show a mixed pattern of recovery. The weak point has been Australia. Meantime, the UK is seeing some upturn in the regions, even if the financial sector - a former mainstay of the business - is not hiring again yet. Everything is in place for that recovery, but at the current share price, one would have to be supremely optimistic to be buying into the sector, or into Walters shares, at this level, Tempus muses.
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