It’s only sensible to run with a holding until the valuation becomes excessive or the investment case alters.
A good example is Record (REC: 98p), a currency manager that is reaping the benefits of organic growth initiatives, diversifying its product mix into higher-margin scalable products and acting as currency manager to asset managers. The shares have delivered a 165 per cent total return (TR) since I included them in my 2018 Bargain Shares Portfolio, during which time the FTSE Aim All-Share TR index has shed 14 per cent of its value.
The latest third-quarter results suggest the outperformance is set to continue. Record delivered 6 per cent higher assets under management equivalent (AUMe) of $86bn (£71.5bn), buoyed by $0.6bn of funds inflows, and $4.3bn of positive foreign exchange movements and mandate volatility targeting. The business continues to serve its clients well, earning £3mn of performance fees, almost doubling the total to £5.8mn in the nine months to 31 December 2022.
This was not expected, nor was the 33 per cent increase in higher-margin dynamic hedging mandates, prompting house broker Panmure Gordon to raise its full-year earnings per share (EPS) estimate by 19 per cent to 6.2p. On this basis, the shares are rated on a forward price/earnings (PE) ratio of 16 and offer a prospective dividend yield of 6.3 per cent. I raise my target from 105p to 125p. Buy.
Built on solid foundations
- 2022 revenue grows 30 per cent to £425mn
- Annual pre-tax profit rises a third to £10.3mn
- Order book edges up to £555mn
Building services contractor TClarke (CTO:140p) delivered a robust operational performance last year and is set to do the same in 2023.
Its ability to deliver contracts on time, on budget and to a high specification while offering clients substantial financial backing helped the closing order book edge up to £555mn (including orders for 2024 and beyond). A focus on data centres, healthcare and energy-efficient smart buildings solutions is key to the growth in orders and management’s expectations of delivering £500mn revenue this year, up from £425mn in 2022.
In turn, the bumper order book provides strong earnings visibility to mitigate risk, as does a healthy net cash position of £7.5mn. In addition, TClarke has access to £15mn of bank lending facilities and £65mn of bonding facilities that are used for a third of contracts, a key differentiator to rivals in the bidding process.
True, the group is facing cost headwinds, hence why house broker Cenkos predicts a similar profit outcome this year. However, the shares are only rated on a modest PE ratio of seven and on 1.6 times book value, so the medium-term growth opportunities are not factored into the current price, nor is the yield attraction. Forecast dividends per share of 5.3p (2022) and 5.9p (2023) provide prospective dividend yields of 3.8 and 4.2 per cent, respectively.
The holding is showing a hefty 74 per cent gain since I first suggested buying (Alpha Research: ‘Profit from a buoyant earnings cycle’, 7 December 2018), during which time the FTSE Aim All-Share TR index has delivered a miniscule one per cent rise. Offering 32 per cent upside to my 185p target price, the pullback from the 163p level when I covered last summer’s interim results (‘Profiting from explosive data centre growth’, 18 July 2022), looks to me like a repeat buying opportunity ahead of what should be well-received full-year results on 8 March 2023. Buy.
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