Vesuvius PLC

[ZootAlors]

Morning all,

It's a rainy bank holiday Monday, so I thought I'd spend some time working on my passive income stream.

I've been building it for about a year now and already have RIO, BHP, HSBA, AV., KGF, TSCO, SMDS and ULVR, so I have mining, financial, food production, retail and industrial support, but I don't yet have property, pharma, oil or utilities. I'd like another industrial before I look at them.

I've skimmed some of the portfolios here and some of the holdings in this sector have risen in capital value such that their yields are no longer attractive, so I started looking at FTSE 350 companies for something suitable and came across Vesuvius PLC.

It yields over 5%, has rising turnover, a market cap of just over £ 1 billion and a nice dividend history.

It also does something thoroughly boring, which I find attractive.

The only thing I don't like is that there are a lot of goodwill and other intangibles in the balance sheet.

Does anyone here hold this one or have any views why's it's unsuitable for a HYP?

Zoot

[Ricksure]

Took a quick look and according to Hargreaves Lansdown the share price has fallen from just over £6 five years ago to £4.05 today while they have only paid out 79.85 pence in dividends, a large capital loss that another fives years of dividends isn't going to cover unless the share price makes a stellar recovery

[funduffer]

Looks quite interesting, thanks for posting.

As you say, quite a boring company - supplying expertise and technology to the (worldwide) iron and steel industry. Nice name though!

Dividends have resumed after a couple of year's reduction for the pandemic. They are now higher than they were pre-pandemic.

Share price has been erratic, some of which was probably the pandemic, but otherwise, who knows? Over £6 in 2018, down at £2.80 last year and now around £4 - quite a roller-coaster. Probably due to the twists and turns of the steel industry prospects

Yield is 5.5% - quite decent, as is the cover - around 2x.

May be HYPable, and certainly there is nothing much else in the FTSE 350 in this sector (Engineering).

My only worry is the market cap, which at £1.1bn is a little low for my liking.

FD

[ZootAlors]

Hi funduffer,

Thanks for your thoughts.

Knowing why the share has dropped so much would help me with my decision but it appears that it started to decline at the end of 2019, when there was a decrease in turnover from £1,798m in 2018 to £1,710m in 2019, followed by £1,458m in 2020.

No doubt a significant part of this is covid related, as turnover was back to £2,047.4m in 2022. However, I checked the global steel production figures and noticed that EU steel production started to decrease slightly in 2019 (pre-covid), whilst overall, global production is up, mostly due to China and India. This trend has continued to 2022. So possibly the decline is principally due to declining volumes in the group's core markets, amplified by the effects of covid.

I don't understand why the share price hasn't recovered from the effects of covid and I expect that a good deal of the increase in turnover from 2018 to 2022 is driven by inflation rather than productivity but nonetheless, employee numbers are up from 11,020 in 2018 to 11,190 in 2022, which I would hope, does indicate some increase in activity.

What would also be rather telling is to compare the geographical analysis of sales from 2018 to 2022 but the classifications are not done the same in the notes to the accounts. However, the aggregate of India and China is £276m in 2018 and Asia provided sales of £565m in 2022, so by my reckoning, they're positioning themselves to cater for the geographical shift in sales.

Based on the above, I think they're undervalued.....or have I missed something?

Zoot