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‘V’ is for Victrex
Posted on January 29, 2009 by Richard Beddard
Filed Under Companies, Share of the week |
And ‘P’ is for pick of the week
This week’s pick of the week is Victrex (VCT), the world’s leadin manufacturer of polyketones, specifically Victrex PEEK polymer.
If investing really were about buying what you know, then this company would be about as far down my watch list as a pair of underpants on a Christmas list, but I prefer to stretch that limitation – buying what I know – to buying what I can learn about. Otherwise, my portfolio would be dull, and not very diversified.
Not being a materials scientist, the word ‘polymer’ is phantasmagorical enough, let alone polyketone, but there are reasons to believe this substance has its uses in engineering, mainly the financial performance of Victrex.
PEEK seems to be a super-substance, a reverse kryptonite, or spinach, a strong water and chemical resistant plastic that doesn’t melt unless you find something really hot to burn it. You can buy it by the sheet here.
This is why I think the materials market likes PEEK, and Invibio, its biomaterial derivative used in medical devices:
- Victrex’s profits have grown threefold in the last nine years,
- The company earns a healthy gross profit margin (about 65%),
- It’s very profitable (it earns about 20% on its assets), and…
- It’s no flash in the plan. ICI invented PEEK in 1979, Victrex has been listed on the stockmarket since 1995 and its stockmarket history is unblemished by losses.
And this is why I like Victrex:
- It has no debt,
- £23m in the bank (on 30 Sept last year), and…
- Its cash profit exceeds its accounting profit.
Despite that record and the invulnerability of its product, the stockmarket doesn’t like Victrex as much as it did. The shares have almost halved since last October.
Looking at the sectors the company services, I can see why; industry, transport, and electronics together accounted for about 88% of the 2626 tonnes of polymer Victrex sold in 2008 while Invibio contributed only 9% of sales. I suppose Invibio might be the more recession-proof.
Though it can withstand heat and chemical attack, not even the mighty PEEK can beat recession and it’s with some trepidation that I make a second manufacturer (after Dewhurst) a pick of the week when it seems almost inevitable they’re going to suffer at least one bad year.
But Victrex’s financial strength should carry it through and if not now, its long-term PE (16) is still right at the top of my buy-zone, then soon, it could be a bargain.
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