Among the UK shares I began building a position in following the pandemic-related sell-off last year were battered ceramic tableware manufacturer Churchill China (LSE: CHH) and laser-guided equipment specialist Somero Enterprises (LSE: SOM). Today, I’m taking a look at how they’ve performed since.
Contrarian pick
As might be expected, Churchill’s share price tumbled last year as the hospitality sector closed its doors. As setbacks go, it’s hard to imagine anything worse for this ‘picks and shovels’ business than a raging pandemic. Today’s full-year numbers for 2020 show just how bad things were for the company.
Total revenues fell a whopping 46% to £36.4m in 2020. The bottom line was even worse. After one-off costs are taken out, Churchill made just £100,000 in reported pre-tax profit over 2020. Contrast that to the £11.3m achieved in 2019.
Still, I think there are reasons to be optimistic. According to the company “there is now growing evidence from enquiries, order levels and sales that activity levels are recovering.” I can only see this momentum growing as we approach Boris Johnson’s full reopening target date of June 21.
On top of this, Churchill remains financially robust. It had net cash and deposits of £14m at the end of last year. That’s only slightly down from the £15.6m war chest it had in 2019. Factor in “an improved competitive position” (according to chairman Alan McWalter) and developments like a new European distribution centre, I think Churchill could do very well post-pandemic.
That’s not to say it’s plain sailing from here. A third Covid-19 wave most definitely can’t be ruled out. Moreover, the rush to start eating out again could moderate fairly quickly as the full financial impact of the virus is realised.
Another potential drawback is the lack of dividends right now. That doesn’t bother me as someone looking primarily for capital growth. However, it might be enough to put income-focused investors off.
Churchill’s share price is now up around 64% since its March 2020 low. I think there could be more to come, especially given today’s positive reaction to the aforementioned dreadful numbers.
Another winner
Since I covered Somero in the same article last year, it makes sense to mention it again here. Like Churchill China, this is a position I’ve been steadily accumulating over the last year. And, like Churchill, this small UK share has done well for me so far. Its share price is up 162% since March 2020, thanks to a swift rebound in trading.
So, a home run then? Not necessarily. Although operating in a completely different industry, Somero faces many of the same risks. A significant third wave may be enough to put construction projects on hold again. It could also force businesses to rein in spending and postpone buying any of its concrete-levelling equipment. Naturally, shares in Somero aren’t as cheap to acquire as they once were either. A P/E of 16 is certainly a lot dearer than the 7 times earnings or so I paid.
For me, however, these risks are outweighed by Somero’s quality. It’s a leader in a niche market and generates consistently high margins and returns on capital. What’s more, the £230m-cap has the financial firepower to weather any extension to the coronavirus storm with lots of cash on its balance sheet.
As such, I’d be willing to buy more of the stock today.
