A Couple of Contrarian ideas

[WickedLester]

Here's a couple of stocks I have picked up shares in over the last few months. Both are exposed to the construction market so both may be in for a fall in profits over the next year or two, but neither of them look expensive to me on historic earnings. Profits at both would have to fall a fair way and stay there before I'd conclude that I'd paid too much for the shares.

Alumasc PLC (ALU)

https://www.alumasc.co.uk/

They describe themselves as the sustainable building products, systems and solutions Group. They have three divisions: Building Envelope, Housebuilding products and Water Management.

The market cap is about £56m and in the last full year they recorded a profit from continuing operations of over £10m. The first half of this year has started well enough with a profit of £4.5m and they seem fairly comfortable about the outlook for the second half.

The balance sheet is not too bad but nothing special with modest debt and cashflow going forward should improve a bit due to the pension deficit recovery payments falling after the last triennial valuation.

The dividend yield is about 6.5% and this is well covered from earnings.

Tyman PLC (TYMN)

https://www.tymanplc.com/

This is a somewhat larger company than ALU with a market cap of £462m. In the last full year's results announced recently they made a profit of £47.8m so once again on an undemanding multiple.

Once again the balance sheet is not too bad with seemingly manageable net debt and cashflow seems perfectly capable of supporting the dividend yield of around 5.5% forecast for this year.

I have had a punt that earnings and dividends at neither company will fall too far over the next couple of years, I'm currently at around breakeven on both, does anyone have an opinion on why I am wrong?

[XFool]

I bought these (ALU) in 2003 (at 123 3/4 pence!). I cannot remember now whether it was because they were mentioned at the time by Lord Lee or because a US value investment house, Tweedy Browne, had bought them. They were still in their original business at the time - aluminium barrels for the drinks trade - or in the process of leaving it behind.

They went through some difficult times (they had a pension fund in deficit) over the years. Eventually things turned up and I hung on as the price rose to 200p and even above. I was greedy and hung on too long! The price fell back again and I was reluctant to accept the lower price and, still later, a loss. So I hung on again in hope. More very difficult times arrived: the global financial crisis, restructuring the business, then the global pandemic. I hung on. The price rose again towards that magic 200p and above. This time I sold out at 225p.

It was a rather small share holding compared to my investments these days and not the kind of company I would expect to invest in today - rightly or wrongly. But what do I know? I had noted it was on the up again, after its more recent price declines - though dropped again following the banking problems. So...

Perhaps invest but expect to hold on for quite a while? It does appear from the figures to have got on top of its historical pension deficit issues.

[XFool]

...Seems to be doing OK. At the mo.

[WickedLester]

For what it's worth I sold the Tyman a short while ago. After costs I made a very small profit but I will also get the dividend later this month. I took a look at them again and decided they weren't especially cheap and there was more risk to the downside than up.

I put the money into CMCX which has a rock solid balance sheet, should hopefully pay a healthy dividend and looks to be on a modest multiple of depressed earnings.

[BobGe]

One possible concern wrt Tyman Plc is Jo Hallas's unexpected and somewhat early departure having not been in the CEO post that long. https://www.investegate.co.uk/announcement/7457584 Her predecessor, the comfortably rotund Louis Eperjesi, grew the business by aquisitions. When he 'retired' she was introduced as an upcoming 'mover and shaker' but it's not clear (to me) what she achieved during her tenure. Then consider the opening sentence of her departure RNS... (*) I think the market will now be waiting for trading and replacement CEO updates, whilst worrying about a construction / refurb. downturn. Tyman has paid decent dividends over the years. I've held some since the Lupus Capital days.

Not sure if this is relevant but there will be a lot of 'product' required in Ukraine at sometime future.


* Although there may be personal matters of which we are not aware.