This post carries on as promised the vaguely musical theme from yesterdays opening the box one. Now That's What I Call Music is a surprisingly long running compilation of recent music hits for pop pickers.
I say surprisingly long running in so far as it is surprising that it is still going in this I-pod, mobile phone and music download / streaming era. But perhaps the down loading of individual tracks rather than whole albums (does any one buy those these days) and shuffle play lists makes compilations more attractive?
If you want to get with it and get Happy with Pharrell Williams or Twerk with Miley Cirus and her Wrecking Ball, then click on the picture for more details. Wow - It's hip to be square, (Huey Lewis & The News) for such an old fogey, time for some embarrassing Dad dancing, Bang a Gong (Get it On - T-Rex) wicked - yo!
Any way, sorry about that, in my last post I mentioned that de-mergers can present good buying opportunities for investors. So I thought I would review another successful investment of mine that was a de-merged company which kept on churning out hits (returns) for my portfolio. I bought this one back in January 2008 at about 180p when it was known as Filtrona after it had been de-merged from Bunzl the packaging distribution company. It was involved in filters for cigarettes and was seen as pretty dull. However from the chart below you can see that it proved to be rather hip! So much so it has even changed its identity to a new abstract name so it is now called Essentra (ESNT). This was apparently specifically chosen to capture what each of Filtrona's businesses manufactures and supplies; namely millions of small but essential components which often play a critical enabling role in the products of the company's customers, everywhere and every day.
Now apart from the dull filters for cigarettes it is also an international supplier of speciality plastic, fibre, foam products and packaging products. In more detail these are:
Component and Protection Solutions - supplies a range of essential products to end markets including oil and gas, industrial and electrical sectors.
Porous Technologies - develops innovative solutions for essential everyday items, ranging from healthcare products to office and school consumables.
Packaging and Securing Solutions - provides essential and innovative solutions for thousands of supermarket and pharmacy items, as well as to the point of purchase and paper and board industries.
Filter Products & Other - providing key components, packaging solutions and analytical laboratory services to the tobacco industry, a global market with growth in Asia and emerging countries and technical and innovative plastic extrusions to the industrial, construction, point of purchase and furniture sectors (basically plastic pipes)!
This one would have been on around 12x earnings with a yield of over 4% when I bought it. Which at the time was cheap versus the market. I liked it because of the security packaging solutions they provide which were under appreciated and the decent returns it makes. I also liked the fact that it was chaired by Jeff Harris who had done a good job at Alliance Unichem before turning up here. After a tough time in 2009 along with many others, I toyed with the idea of selling, but stuck with it and I'm glad I did! The management has since been bolstered by the addition of Colin Day as CEO - he was the former FD of the highly successful Reckitt Benkiser (RB.)
Any way to cut a long story short (Spandau Ballet - remember them?) they got back on form in 2010 onwards and ramped up the margins, ROE and ROCE and delivered some great sales growth of around 13% per annum over the period. This fed through into similar rates of earnings and dividend growth. Once the market recognized this performance the shares began to re-rate and as you can see from the graph above they outperformed the market spectacularly since 2010. I did top slice some in 2011 and 2013 to re-balance my portfolio (what mistakes they were) so I guess that's why they say you should run your winners! I finally exited earlier this year when they passed 900 pence. So I wouldn't suggest you rush out and buy it.
I dare say they may well progress beyond this level in the future if they continue to deliver strong earnings and dividend growth which is forecast, but I'll explain my reasons for selling in my next post as knowing when to sell or having a selling discipline is one of the hardest things in this game. But Don't look back in anger, I heard you say, at least not today (Oasis).