A patient wait for the harvest

On the back of the encouraging recent interim report from Nichols, the soft drinks company, was the strap line “Vimto – seriously mixed-up fruit”, which is used in its new advertising campaign.

It caught my eye as it might just sum up my own investment portfolio and approach. What I ideally try to do is, very simply, acquire a small sapling, patiently watch it grow and develop, hopefully to produce an ever-increasing fruit crop – dividends – as it matures and becomes more valuable.

My largest holding, PZ Cussons, is the perfect example, having just achieved a £1bn market capitalisation after a great set of final results crowned with a 12 per cent total dividend increase. I first invested in 1976 and over the years both added and occasionally reduced my holding. In July, my investment was showing an 11 times appreciation on cost and yielding an annual 25 per cent, hopefully rising. I slightly trimmed my holding as I judged the company to be fully valued in the short term and needed to generate some cash for reinvestment in new opportunities.

Now, of course, PZ Cussons’ performance has been exceptional, on the back of its committed, conservative management and its hugely successful Nigerian market. It is investments such as this that I strive to find.

The aforementioned Nichols, which is only one tenth of the capitalisation of PZ Cussons, has been a solid, if rather uninspiring, performer over the years and seemed to have a somewhat uncertain future when takeover talks – presumably with AG Barr – broke down. However, it has acquired a new momentum with earnings, dividends and cash growing significantly; more than 20m bottles of Vimto are sold in the Middle East during Ramadan and initial sales are being made in South Africa and China.

My search for new saplings has just taken me to Sheffield to visit Aim-quoted Pressure Technologies, hosted by its impressive chief executive, John Hayward, who led a “buyout” from its then German owner in 2004. Describing itself as “a leading designer and manufacturer of speciality high-pressure, seamless steel, gas cylinders serving large global markets”, broadly 80 per cent of the company’s turnover goes to the oil and gas sector on semi-submersibles, drill ships, pipelines etc. The balance is predominantly defence-orientated – virtually all our naval vessels carry some Pressure Technologies compressed air products, including the new “Astute” submarines, with important sales to France and Spain and significant future opportunities worldwide.

Aerospace turnover is of growing importance as is its work on trailer cylinders and bulk storage. A potentially very significant development is subsidiary Chesterfield Bio Gas, which offers a system for the upgrade, storage and dispensing of energy-
efficient biogas in the form of naturally generated biomethane.

Pressure Technologies has grown rapidly. However, two major customers account for nearly 70 per cent of turnover and some of its markets are softening. But this £19m-capitalised company, with £6m in the bank, on a price/earnings ratio of 5, and with a well-covered near 4 per cent yield, has been firmly planted in my orchard at 165p.

John Lee is an active private investor, writing about his own investments. He may have a financial interest in any of the companies, securities and trading strategies mentioned.