This page is quite old hence its rather spartan appearance.
Why not check out our Latest Stories page for our newest articles or search our site for anything.
MARKET COMMENT
By
Great Titchfield Street, London -- There are many similarities between Pilkington (LSE: PILK) and Northern Foods (LSE: NFDS) besides the fact that both reported their latest results today. Both companies are long-term underachievers as far as the stock market is concerned. Northern Foods' share price is the same level as it was thirteen years ago whilst Pilkington has seen its share price decline over the same time. Both companies are often touted as potentially cheap stocks. They are both valued at around 10 times the profit figures they released today and both have a dividend yield of around 5%. So on the face of it they offer reasonable value especially with profits forecast to increase over the next couple of years. On a few occasions in the 1990s each share put in a nice little spurt but both have struggled to produce any consistent run of form. So why is that? Both firms have a poor record of growing their sales. At £2.8b Pilkington's sales are only marginally higher than they were seven years ago. Northern Foods has put in a similar performance. Although its sales have declined by a third to £1.3b over the same timeframe most of this relates to the demerger of Express Dairies (LSE: EXD) in March 1998. Along with poor sales growth both companies have struggled to generate cash over the last few years with heavy capital investment programmes. The final piece in the puzzle is looking at the nature of the two companies' businesses. Both supply what are essentially commodity products, namely glass and food, and primarily supply a small number of large, powerful customers. Consequently both companies have little in the way of pricing power and struggle to maintain any reasonable rate of profit growth. So there are three lessons to be learned. Concentrate on companies that can grow their sales as well converting their sales growth into cold, hard cash. In addition, look to see if they have the ability to hold their own against their customers. This won't guarantee you a good long-term investment but it should narrow down your options to a manageable level. More: Building A Portfolio