These Companies Are Beating the Odds

The Week: Morningstar columnist Rodney Hobson looks at updates from Polypipe, Purplebricks and Dixons Carphone - and reflects on 12 years in the markets

Rodney Hobson 18 December, 2020 | 9:20AM
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The Week

Let us end the year on an optimistic note. Some companies are still defying the odds.

One example is Polypipe (PLP), whose products are used in water and environmental projects. It is only a month since it alerted the market to the fact that expectations had been exceeded in the third quarter to October 31. Now it says the performance since has also beaten expectations.

Group revenue in November was 8% ahead of the same month in 2019 and operating margins have improved, although coronavirus restrictions mean they are not yet back to normal levels. Even so, operating profits for the full year to the end of January have been upgraded from the existing consensus of £35-37 million to about £40 million. The order book remains strong.

The shares promptly jumped 10%, followed by rises on the following two days, and have reached their highest level since early March but they are still below their 619p level just before the stock market crash began. They will surely get back to that peak early next year.

Estate agent Purplebricks (PURP) is another, quite different, company to do better than expected. It bounced back into profit in the first half to October 31 and expects profits for the full year to be at the top end of forecasts.

Despite a sharp reduction in spending on advertising, it saw house sale instructions rise 8%. More important, it has abandoned the potentially disastrous foreign expansion that it could ill afford.

The shares collapsed alarmingly in the stock market slump earlier this year, from 130p to 23p, but they have recovered to 91p on the better prospects. I’m not keen on the business model but if you are a shareholder there is no caused to consider quitting at this stage.

Electrical goods retailer Dixons Carphone (DC.) has been through the mill but interim results brought some cheer to shareholders including myself. Underlying profits rose from £87 million to £89 million as online sales increased by 145% and like-for-like sales rose 16%.

The shares jumped 12% to 121p and have since moved up to 126p, their highest level since the end of February. That’s high enough for now but if the turnaround programme succeeds this could be the start of better times.

And It's Goodbye From Me

This weekly column started 12 years ago in the teeth of a financial crisis and it ends in the teeth of another one. Plus ça change.

If things look grim now, after a year torn apart by the Covid-19 crisis and Brexit wranglings, consider how they looked at the end of 2008. The banking sector was still on the brink of collapse in the UK, United States and Europe, likewise the housing market where reckless lending had precipitated the crisis. Developed nations faced unknown months, possibly years, of governments pumping money they didn’t have into failing economies while undeveloped countries that could not afford remedial measures looked set to take the brunt of a wave of world poverty.

Would you have believed that we were on the brink of renewed prosperity, with stock markets virtually everywhere about to embark on 12 years of steady rises? Just as 2009 marked a turning point for the better, 2021 offers similar opportunities for investors.

Back then we were hoping desperately that 4,000 points would hold on the FTSE 100 index. It didn’t, but it did hit 5,000 points before 2009 was out. This time we have been fretting over whether 6,000 points would hold. It didn’t, but we are already wondering if 7,000 points can be achieved. As dividends are restored, even if at a lower level than before, the opportunities to make money are returning.

Investors need to keep a sense of proportion. Those who held their nerve during 2020 are already reaping the benefits.

I wish all readers of this, my final column, a better than expected Christmas and an even better than expected New Year. I will continue to comment on Twitter @rodneyhobson. Stay safe. Stay invested. Stay optimistic.

 

The information contained within is for educational and informational purposes ONLY. It is not intended nor should it be considered an invitation or inducement to buy or sell a security or securities noted within nor should it be viewed as a communication intended to persuade or incite you to buy or sell security or securities noted within. Any commentary provided is the opinion of the author and should not be considered a personalised recommendation. The information contained within should not be a person's sole basis for making an investment decision. Please contact your financial professional before making an investment decision.

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About Author

Rodney Hobson

Rodney Hobson  is a columnist for Morningstar.co.uk and author of several investing books, including The Dividend Investor and How to Build a Share Portfolio.