As I write, the Barclays share price is continuing its fall. There could be good reason for the decline if the firm’s profits are set to plunge because of a general economic recession.
I’d avoid Barclays and the other banks. Instead I’d invest in the shares of companies with businesses outside the financial sector, such as Polypipe (LSE: PLP). With the release of its full-year report this morning, the company’s share price has been rising.
No hit to trading yet
Polypipe makes plastic piping systems for the residential, commercial, civil, and infrastructure sectors. In the domestic setting, for example, it’s the sort of stuff you might plumb up your central heating wet system with.
The firm’s range is vast, with over 20k product lines, and it operates from 19 facilities. In 2019, around 90% of the revenue came from the UK, 5% from the rest of Europe, and 5% from the rest of the world.
The directors said in today’s report that they are keeping the coronavirus pandemic under “close review”. They are taking “all appropriate actions” to ensure the health, safety, and wellbeing of employees and to minimise disruption to operations. But, so far, the virus has not affected the business much.
Chief executive Martin Payne said, “Aside from the yet unknown effects of Coronavirus on the wider economy”, he expects a year of progress ahead. Meanwhile, the figures for 2019 are steady. Revenue rose by 3.3% compared to the prior year, underlying cash from operations moved 2.2% higher, and underlying earnings per share lifted by 4.2%.
The directors pushed up the total dividend for the year by 4.3%. I reckon companies such as Polypipe must proceed ‘as usual’ because the effects of the coronavirus on the economy are as yet unknown. And my guess is that Polypipe’s operations supplying the nation’s plumbers and other trade professionals will be less affected than those of firms in other sectors, such as travel and leisure.
The company’s expansion has been driven by both organic and acquisitive growth. It has an impressive five-year record of generally rising revenue, earnings, cash flow, and shareholder dividends. So far, City analysts watching the company expect further single-digit percentage upticks in earnings and the dividend in the current trading year.
Such expectations could change if the coronavirus induces a massive general economic downturn. But I’d be more confident buying shares in a steady company like Polypipe than in many others.
With the share price at 478p, the forward-looking earnings multiple for 2020 is just over 15 and the anticipated dividend yield is around 2.7%. That’s not a bargain-basement valuation, but the company has been a steady performer for some time.
The stock is down about 22% over the past month, but even now it’s 80% higher than it was five years ago. I think Polypipe is proving its resilience in these tough markets.
Kevin Godbold has no position in any share mentioned The Motley Fool UK has recommended Barclays and Polypipe. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.