Many of us are now becoming ‘nesters’. After all, the recession is putting paid to that foreign holiday and our plans to buy a new home. It is retro time - a return to childhood days when home was not just a place to live, but a comfortable sanctuary and an escape from our cares. Investors, too, are in the mood to turn back the clock.
Mining group buys package of property assets
- Penny share uranium prospector VANE Minerals (ticker: VML) acquires a license over 16,100 acres in Arizona.
- According to the United States Geological Survey, Arizona could hold almost half of the USA's uranium reserves.
- With nuclear power gaining adherents uranium seems sure to be in rising demand in the coming years.
Many savers are fed up with blue chips that implode and bank deposit rates that make it hardly worth the agony of opening an account. They’re ready to trust those old-fashioned investment virtues of a sound balance sheet and a generous dividend.
This was the message for your Penny Sleuth on a visit to Kidderminster this week. “Can you direct me to the carpet factory?” I asked a passer-by. “Which one?” came the reply. “There are six of them in this town.” So that was the first thing that I learnt – that this country’s carpet industry is far from dead. Like the manufacturing industry in general, ‘rumours of its demise appear to have been exaggerated’.
Carpets are making a comeback with consumers
It’s a fact that 80% of UK carpets are imported, mainly from Belgium and Holland. But still our own industry clings on, and for good reason. Carpets are still easily the most popular form of floor-covering – in fact they are having a minor renaissance after our flirtation with polished wood and fancy stone tiles. And competition from the usual suspects in Asia is limited by the costs of transportation.
So Alan Bullock, an industry veteran who is Managing Director of Victoria Plc (ticker: VCP) , is certainly not expecting the carpet business to roll up and die despite what he admitted to be ‘the worst conditions I have seen in 37 years’. Demand fell precipitously last autumn not only here in the UK, but also in Australia where Victoria has a 15% market share and in its minor markets of Ireland and Canada. Bullock says that the market is now ‘bouncing along the bottom’ but he is certainly not forecasting an early recovery.
Instead he has battened down the hatches, but not to the extent of banishing any new investment. As we walked around Victoria’s factory and huge warehouse, Bullock was able to point to new machines, busy churning out tufted carpet at a rate of 60 metres an hour. “We have even more advanced machines in Australia”, he explained, “that can make the type of carpet that our competitors cannot.”
Superior technology curbs the competition threat
Victoria has other things going for it. Rather than making woven ‘Axminster’ carpets, it concentrates on the tufted variety, the production of which is highly automated and requires very little labour input. This makes imports less of a threat and also places Victoria firmly at the mid to upper end of the carpet market, where quality and service especially in terms of availability and rapid delivery, are essential.
Its biggest customer, John Lewis, is still expanding but in a depressed housing market even it is struggling to sell carpets. So Victoria has countered by entering the contract market where it works with interior designers and architects, and is currently supplying carpets for the guest bedrooms of Hilton International Hotels in the UK and Ireland.
Looking further ahead, Bullock speaks enthusiastically of ‘green’ carpets. Its Canadian subsidiary Colin Campbell & Son is selling a natural woollen carpet, free from chemical treatment and metallic dyes. Backed by natural latex, this makes it biodegradable and disposable via landfill, while it is also kind to allergy sufferers. But for the moment, the focus is on getting through the recession. And, however long this lasts, Victoria should certainly be around to enjoy the next upturn.
Investors could do worse than take their cue from Victoria’s bankers. The last thing bankers want today is to be writing off any more loans, and they are happy to extend credit to Victoria. What they like is not just Victoria’s strategic position in the market place, but also its financial strength. With little requirement for further capital investment, Victoria’s already modest borrowings will be reduced further this year.
But the really striking thing is that Victoria’s £12m stock market value is backed by net tangible assets of £32m, equivalent to 430p per share. This is more than double the 165p share price, and amongst the £10m of property assets are a few acres that could be surplus to requirements. So while this is not a company that fits the bill for my newsletter Red Hot Penny Shares, it is a very solid situation which offers an attractive dividend yield of over 5%.
Good investing,
Tom Bulford
For The Penny Sleuth
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