If there’s one thing that makes certain companies stand out, it’s a competitive moat.
A well-known and popular brand, a patented drug, a popular drink, software applications used in workplaces, or a service that’s so widely embedded the number of users keeps growing — whatever it is, advantages like these hold huge appeal for investors. They help deter the competition and they generally mean strong pricing power, both of which safeguard the companies’ revenues. Customers will pay up rather than do without, and will be reluctant to face the cost, upheaval and risk of switching to a new provider.
The London Stock Exchange is an example of a company with high barriers to entry. Its unique and essential real-time data and market intelligence ensure recurring and high revenue streams from subscribers whose numbers continue to increase. Its move away from simple equities trading and IPOs has injected a new strength into the business. So powerful is the data side that the income it derives from transactions barely registers.
But even moat-protected companies face difficult periods when macro factors weigh on performance, or they invest more heavily in capital expenditure. Plastics maker Victrex has grappled with a number of challenges in recent times but these have not undermined its leadership in the speciality chemicals market.
Its moat is built of high-grade polymers used in manufacturing across the energy, medical, automotive, electronics and aerospace industries. The quality and properties of its patented plastics, finished and semi-finished products, contribute to its market leadership and strong customer relationships. And what is more, analysts see scope for growth, particularly in medical applications, where it is diversifying into knee implants, and in energy, where it has a thermoplastic alternative to steel pipes for subsea use.
BUY: Victrex (VCT)
A bumpy ride might lie ahead, but the polymer company looks well prepared, writes Julian Hofmann.
First-half results for speciality polymer manufacturer Victrex were operationally sound, but set against the background of a highly uncertain future for trade flows in a tariff-dominated global economy. However, the company, having experienced tariff problems during the first Donald Trump presidency, has prepared itself better than others for a volatile ride.
Investors can take comfort from the fact that the company’s capital investment costs are tailing off just in time. The imminent completion and certification of new plants in China, part of management’s strategy to strengthen its in-country supply chains, meant capital expenditure costs fell substantially from £21.8mn in 2024 to £8.6mn in these results. Victrex’s interest in China is powered by its aerospace division, which is linked to the production of the C919 short-haul narrow-body jet, produced by Chinese state-owned aerospace manufacturer Comac.
This also means that capex for the full year will come in at the lower end of an 8-10 percentage points of revenue range. Lower capex also benefited the cash flow statement and meant that operating cash conversion doubled to 128 per cent.
In tonnage terms, polymer sales in Europe were up 10 per cent, at 1,077 tonnes, while North America saw the most growth, up 41 per cent to 359 tonnes, with Asia-Pacific up 15 per cent at 582 tonnes.
Victrex’s share price was swept up in the turmoil following Trump’s “liberation day”. That said, with cash flows resuming after heavy outgoings, the balance sheet looks increasingly solid. At a FactSet consensus price/earnings ratio of 14 for 2025, compared with a price/earnings five-year average of 21, the shares look good value.
BUY: On The Beach (OTB)
Tech upgrades are boosting sales and helping to keep marketing costs in check, writes Valeria Martinez.
Trade tensions and recession fears may be rattling markets, but holidaymakers aren’t letting this get in the way of their summer plans. Online travel agent On The Beach is on track to book yet another record year, having outpaced the wider packaged holiday market in the first half.
The total transaction value of bookings rose 13 per cent, while adjusted revenue grew by 12 per cent to £64.1mn. Momentum is strong heading into summer, with the forward order book currently 14 per cent ahead of last year.
Crucially, the company isn’t overspending to drive this growth. Marketing costs were broadly flat, and actually fell as a percentage of adjusted revenues by 4.4 percentage points to 44 per cent. That helped lift adjusted earnings before interest, tax, depreciation and amortisation by nearly a fifth and pushed margins up by 3.6 percentage points to 21.6 per cent.
Tech investments are also bearing fruit. Platform upgrades have improved marketing efficiency and allowed the business to expand into Ireland and launch city break packages. The latter generates about half the revenue of a beach holiday, but comes at no extra marketing cost. Around 60 per cent of city break bookings are from existing customers.
Healthy cash generation helped lower net debt and fund a £30mn return to shareholders through dividends and buybacks. The shares have jumped more than 54 per cent over the past year, yet still trade at nearly half their five-year average price/earnings multiple of 28 times.
HOLD: Imperial Brands (IMB)
Imperial Brands shares dropped by 8 per cent after it announced that chief executive Stefan Bomhard would retire this year, writes Christopher Akers.
Bomhard, who has spent five years at the helm of the FTSE 100 tobacco giant, will be replaced by current chief financial officer Lukas Paravicini on October 1.
Investors should expect continuity in strategy as well as in personnel, given chief strategy and development officer Murray McGowan will step up to the finance role and chair Thérèse Esperdy will continue in the position.
The news came as Imperial reported half-year results in line with expectations, as reported operating profit fell 3 per cent to £1.46bn, and maintained annual guidance for low single-digit net revenue growth and mid single-digit adjusted operating profit growth.
The trend of higher cigarette prices offsetting lower volumes continued, as tobacco prices rose 6 per cent while volumes fell 3 per cent. Market share gains in the US, Germany and Australia supported the tobacco performance.
Meanwhile, net revenue at the company’s “next generation products” business, which sells heated tobacco, vapes and oral nicotine pouches, rose 15 per cent on a constant currency basis. Divisional losses were down by 14 per cent to £43mn. Yet this is still a small part of the wider business at 4 per cent of net revenue.
Share buybacks remain a key attraction. The company has an ongoing £1.25bn programme and is committed to a buyback in each year to 2030.
The shares trade on nine times consensus earnings for 2025 and yield 6 per cent.
https://www.ft.com/content/c958cab9-a7d5-4c18-8b53-eb43d72290d3
