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Bargain shares: On the bargain hunt

A manufacturer of beauty and healthcare products has delivered eye-popping results and looks primed to deliver in the new financial year, too.
Bargain shares: On the bargain hunt

I have recently covered the financial results of several companies that produce high returns on capital employed, and have business models that enable them to produce strong cash generation, too. Examples include financial services company Jarvis Securities (JIM) and Supreme (SUP), a distributor and manufacturer that sells a range of products to discount retailers and supermarkets.

To that list we can add Creightons (CRL), a Peterborough-based manufacturer of beauty and healthcare products that has consistently delivered a 20 per cent post-tax return on equity and a high cash conversion rate, too. This week’s record results were no exception with net cash from operating activities (after tax payments) exceeding the company’s record operating profit. It was the same last year, too, key reasons why I included the shares in my 2020 Bargain Shares Portfolio.

The ability to generate and then recycle cash flow back into a high margin business (Creightons earns a gross margin exceeding 40 per cent) creates a virtuous circle whereby the additional internal investment underpins future profit growth and utilises the operational leverage of the business. It’s good to see that shareholders are being rewarded with a dividend, albeit the share price growth since my buy call has been the greatest reward. 

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