Buy Portmeirion when there's blood on the crockery

Portmeirion sources, makes and sells homewares, specifically tableware, cookware and home fragrances. In each of these markets, it targets high-end customers, with five established brands. The group manufactures roughly half its products – primarily earthenware and home fragrances – with the rest, such as bone china, coming from external sources. As well as the third of revenues that come from the UK, 30 per cent comes from the US and 8 per cent from South Korea, where the group has an exclusive relationship with a distributor. Its other smaller overseas markets, which make up the remaining 28 per cent of sales, are served by a mix of distributor relationships and direct sales to retailers.

While recent years have seen steady sales growth, strong returns on capital and margin progress, there is no getting around the fact that Portmeirion’s business is very cyclical and sentiment towards global economic prospects, and particularly the UK, is darkening. The risk is increased by the fixed costs associated with manufacturing and the necessary stock build required for Christmas and in support of product launches.

However, Portmeirion's resilience to any slowdown should be increased by management's five-point strategy, which focuses on: profitable sales growth; launching new products and introducing existing products to export markets; investing in its brands; increasing operational capacity; and making earnings-enhancing acquisitions such as its purchase of Wax Lyrical in 2016.

What's more, fears of a slowdown in Portmeirion's key markets are yet to be substantiated. Good progress was reported at the time of the half-year results. In the six months to June 2018, the group increased cash profits by 13.9 per cent to £3.1m, and net debt fell 23.5 per cent on the prior year to £1.3m. The UK division shrugged off the much-discussed retail malaise to deliver 8.5 per cent sales growth. And while Asia was a black spot following a sharp increase in competition in South Korea and problems with an Indian distributor, these issues are expected to abate in the second half. Meanwhile, the US is growing strongly (29 per cent at constant currencies, or 18 per cent after exchange rate movements) and Portmeirion seems to be adapting well to changes in the market caused by the rise in online shopping.