Cookson has done its shareholders proud in recent months.
British manufacturing has changed dramatically since the 1970s, when we were the world's leading producer of extremely poor quality motor vehicles and other low-value added products, such as cheap textiles and bulk chemicals.
Competition from low-wage countries has pretty much destroyed those industries, and in order to remain competitive, British manufacturers have had to adapt by exporting low-skilled jobs and generally restricting domestic production to higher-value added products which require more highly skilled labour.
One such company is the FTSE 250 materials technology multinational Cookson Group (LSE: CKSN), which reported a 14% rise in earnings per share (eps) last Monday for 2011, and also increased its final dividend by 26%.
What Cookson does
Cookson produces consumables for use by the global electronics, foundry casting and steel industries, from its manufacturing facilities in over 40 countries. It can trace its origins back to 1704, when Isaac Cookson established several glass and metals businesses in Newcastle. Whilst it still makes some things in Britain, the low-skill jobs have long since gone overseas.
Cookson sells its products all around the world, as you can see from the most recent geographical breakdown of its sales which is as follows:
- Europe 35%
- Asia-Pacific 32%
- America, Canada & Mexico 23%; and
- Rest of the World (mostly Brazil and South Africa) 10%.
Show me the money
When Cookson's 2011 results were released it was clear that the good news was already in the share price, because it only rose by a couple of percentage points on the day. As I type this, they are trading at 696.5p, so the "headline eps" of 70.4p puts them on a historic price-earnings ratio of 9.9, while the annual dividend of 21.75p means that they yield 3.1%.
Please note that the company produces its headline eps by using the increasingly common practice of adding back the amortisation of intangible assets, as well as ignoring exceptional items and other one-off gains and losses. In contrast, the statutory eps rose by 0.4% to 53.2p.
A big concern in the last set of figures was that Cookson's final salary pension schemes were in deficit to the tune of £114 million. There was good news on this front, as this had fallen by 48% to £59 million. Given that Cookson's pre-tax profits for 2011 were £262 million, the deficit now represents less than three months' earnings which can easily be managed.
Cookson is another way into China
I'm not a fan of Chinese companies. The rule of law in China is very weak, political connections are often needed to protect your property rights and the standard of corporate governance leaves a lot to be desired.
So I invest in the Chinese economy via shares in large non-Chinese companies which do lots of business with or in China, such as the world's biggest miner BHP Billiton (LSE: BLT) and the fast-food restaurant giant Yum! Brands (NYSE: YUM.US).
Cookson is another such company; it has more employees in China than in any other country and China is also its biggest market.
My Cookson story
I first bought shares in Cookson last September at just over 400p and on a P/E of 6, believing them to be oversold. Back then the stock market was so fearful that it didn't react positively when Cookson trounced expectations by producing an excellent set of half-year results.
So I took the plunge and haven't regretted it, as the shares have risen by about 65% in just over five months. Although Cookson's P/E is now a touch under 10, I plan to hold onto them for some time, particularly since the general tone of the annual report indicates that it has some decent prospects.
More from Tony Luckett:
> Tony owns shares in BHP Billiton, Cookson Group and Yum! Brands. The Motley Fool owns shares in BHP.
