From driveways to patios, bike stands to benches, litter bins to anti-terrorist street bollards. The industrial logic linking these products may not be immediately obvious but Marshalls makes them all. Britain’s largest provider of paving and landscaping products, it is also regularly cited as the company that supplies the paving stones to Trafalgar Square.
Marshalls was established by Solomon Marshall in 1890 and is based in Yorkshire. It owns and operates quarries and manufacturing sites across the UK and employs about 2,000 people; it also has a small international operation mainly focused on the Netherlands and Belgium. The company’s stock market listing values it at just under £1.4 billion, giving the business a place in the FTSE 250 midcap index.
The wide variety of products that Marshalls produces makes the investment case an interesting one. As a supplier to the public and private sectors as well as households, the company is often regarded as a bellwether for the economy.
Providing landscaping to homeowners means the group is exposed to the housing market and consumer confidence. Supplying the paving and other landscaping for projects such as Crossrail and HS2 means it is linked to the growth in Britain’s infrastructure. Its fortunes are even to an extent tied in to the weather: homeowners are less likely to want to have a new drive laid if snow is falling, for example.
That it manufactures street furniture from parking bollards to anti-ram barriers makes it vulnerable to changes in government spending plans but also binds it into what, albeit unfortunately, is a structurally growing market for security and terrorism-prevention products.
Marshalls’ financial performance, and its share price, have picked up particularly well under a management team led by Martyn Coffey, 56, who took over as chief executive in late 2013 and concentrated the business in areas of high and sustainable growth. Last year Mr Coffey kept up the momentum with a new five-year strategy built on investing in organic growth and select bolt-on acquisitions. Late last year, for example, Marshalls bought Edenhall, a British concrete brick manufacturer, in a deal worth up to £17.2 million.
That emphasis on growth most recently translated into a 14 per cent increase in pre-tax profits to £37.1 million over the six months to the end of June on a 15 per cent rise in revenue to £280.1 million. The operating margin ticked up to 13.9 per cent and net debt, higher as a result of the Edenhall acquisition, is running at a sustainable £97.7 million. The interim dividend was lifted by 18 per cent to 4.7p.
Although Mr Coffey has achieved much since taking charge, including smartening up its digital presence, probably the most striking thing is to have made the group’s earnings look sustainable as well as growing. The group is, after all, a UK-focused company that should easily be winded by weakening housing markets and ebbing confidence. Instead, trading has been going from strength to strength and is forecast by analysts to continue doing so.
All of this has made for a sharp increase in Marshalls’ share price, which has risen by about 670 per cent since Mr Coffey took over. The shares, up just under 42 per cent since this column recommended buying them a year ago, were 7p, or 1 per cent, higher at 692½p yesterday.
They carry a premium rating, trading for about 24 times Numis’s forecast earnings for a prospective dividend yield of just under 2.1 per cent. That rating doesn’t look exorbitant, particularly as there looks to be plenty more in the tank.
ADVICE Buy
WHY Diversified, high-growth domestic company that also has the opportunity to increase its business overseas
Clarkson
Clarkson has made regular appearances in this column over the years and the provider of services including shipbroking and financing for buying and building vessels has managed to attract all the conventional recommendations of buy, hold and avoid.
For a company with activities across six continents that is often taken as a reference point for the health of the global economy and trade it’s not hard to see why.
Established by Horace Anderton Clarkson in 1852, Clarkson is a world leader in shipping services. The biggest part of the business, responsible for more than three quarters of first-half revenues, is the broking division, which connects ship owners and cargoes. The unit’s fortunes are linked to freight rates — the cost of renting vessels — which have been depressed because of a glut in supply since the financial crisis but have this year shown signs of rising more healthily.
By far the most volatile part is its financial services division, which has been suffering from a fall in the number of new ships being built and was behind a surprise profit warning in April last year. However, the introduction of a new regulation called IMO 2020 at the beginning of next year is expected to boost Clarkson’s fortunes. The new rules will cap the amount of sulphur that ships are allowed to emit, immediately making a sizeable proportion of the world’s fleet redundant.
The thinking is that either the number of ships globally will shrink after the cap comes into effect, pushing up freight rates, or that ship owners will scrap their out-of-date vessels and have new, compliant ones built. In theory, Clarkson should benefit either way, at its broking arm, or in financial services.
Unfortunately, this is no closely guarded secret and optimism around it has helped support the shares, against a background of heightened worries about the potentially damaging effects of the war over tariffs between Washington and Beijing.
The shares, off 60p, or 2.5 per cent, at £23.20 yesterday, are valued at just over 20 times Liberum’s forecast earnings for a yield of nearly 3.4 per cent, but are not compelling.
ADVICE Avoid
WHY Too closely linked to global economy and trade
