FTSE 350 winners: 20 years of great returns
Anniversaries are often a time to pause and reflect and as this publication enters its third decade we felt it would be an excellent excuse to take a look back at the best performing UK stocks from the last 20 years of our existence.
The table below shows the top 10 performers which are currently constituents of the FTSE 350 index. In this article we examine each of these names in turn and determine whether investors should buy more, sell or hold on to the shares.
This is always a good discipline to exercise when investing, and is a lesson you can apply to other names in your portfolio which may have served you well over a long period and thus become favourite stocks where it can be hard to let go.
Impressive returns have been served up – although the best performer by a long chalk is sports fashion retailer JD Sports (JD.) which has delivered a fantastic total return of nearly 10,000% since 1999.
This is a company which really seems to know its onions in terms of serving up exactly what its customers want.
It was ahead of the curve with the ‘athleisure’ trend which has seen the distinction between what millennials wear at home, to socialise and in the gym become increasingly blurred.
Now investors need to decide if the company’s next growth phase, including a stab at the US market through the 2018 acquisition of Finish Line, will be equally as successful. Read on to get the view of Shares’ retail expert James Crux.
A look at a slightly longer list of top performers reveals a diverse set of names. The presence of flow control specialist Spirax-Sarco (SPX) is testament to how the UK engineering sector has moved on from its metal bashing past to become a more sophisticated collection of companies.
Not all of this FTSE 350 best of the best have been consistent. One of our favourite stocks – US marketing products outfit 4imprint (FOUR) produced a negative total return of -41.2% in the 10 years leading up to September 2009 as it was hit by the financial crisis.
Yet over 20 years it has delivered a very pleasing total return of 860%. It demonstrates that while you should be vigilant in taking a second look at the prospects for the best firms, there is also value in being patient.
ANTOFAGASTA (ANTO) 934.6p
20-year total return: 1,740%
Miners are mostly cyclical businesses which tend to do really well when the economy is up and everyone is buying stuff, and can do poorly when the proverbial hits the fan.
So it may come as a surprise that Chilean copper miner Antofagasta (ANTO) has been one of the top performers in the FTSE 350 over the past 20 years.
Copper is used in practically everything you can think of, so unlike its big diversified rivals like Glencore, Rio Tinto and BHP, the firm hasn’t had as many issues selling its product over the years that rivals who dig lots of other metals out of the ground have had.
A well-run business which focuses on low-cost copper production at four mines in its native Chile, Antofagasta does have an international exploration programme and looks for opportunities across the world.
But it always has a level-headed approach to growth, and has preferred to prioritise the lower risk options in recent years of expanding operations at its current mines.
Its consistently strong balance sheet and regularly strong dividend pay-out ratio, combined with the quality of its assets and operations, means it has long been a favourite with investors over the years.
A best-in-class company at a relatively cheap price, buy Antofagasta while market sentiment is poor.
AVEVA (AVV) £35.80
20-year total return: 4,700%
Computing has a come a long way in the past 20 years and Cambridge-based AVEVA (AVV) has emerged as one of the world leaders in putting digital design tools in the hands of engineers around the world.
AVEVA sells computer-aided design software used by engineers to plan, design and build large infrastructure projects. Think huge oil rigs and nuclear power stations that fuel the world’s economy, massive transporter ships that move goods all over the globe and assisting smart manufacturing of everything from steel, chemicals, food and pharmaceuticals.
It has grown into today’s £5.7bn FTSE 100 company by partnering with the biggest and best in its industry segments, and has done so almost entirely through organic means. The exception is in 2017 when it merged with the software arm of French firm Schneider Electric to effectively double the firm’s scale at a stroke.
In September 1999 you could have bought shares for 75p, making for a capital return in excess of 4,600% to date, but it has also paid modest dividends for years, including a £10 per share one-off cash return as part of the Schneider deal. Pushing the development boundaries into new technologies, such as digital twin simulations, leaves AVEVA in great shape for the decades ahead.
CLARKSON (CKN) £22.45
20-year total return: 4,830%
Called the ‘undisputed heavyweight of the shipbroking market’, Clarkson (CKN) has long been a favourite with investors.
The company has four main divisions – ship broking (the biggest at 74% of revenue), financial services for the shipping industry, port support services and research.
Having delivered a whopping total return of 4,830% over the past two decades, the firm has been the second best place in the current FTSE 350 index to put your money, behind only JD Sports, and has paid 16 consecutive years of increasing dividends.
Clarkson’s fortunes really changed from 2004 onwards, following the appointment of Richard Fulford-Smith, one of the most well-known characters in London’s shipping community, as chief executive.
Fulford-Smith became central to the firm’s emergence as the world’s largest shipbroker, and in his four years in charge helped the company’s share price to double.
But he departed abruptly in 2008 after complaints over his handling of legal action against the firm by two Russian oil tanker operators.
He was replaced by current chief executive Andi Case, another highly respected figure in the ship broking world.
Under Case’s leadership, the firm’s share price has trebled as it weathered the cyclical nature of the shipping business – affected over the years by the financial crisis, oil slump, trade wars, etc – to record consistent growth, with the reputation of its ship broking arm meaning it could brush off any issues weighing competitors down.
A proven long-term winner with a good dividend history, Clarkson still has scope for growth and current investor nervousness could present a good buying opportunity.
CLS (CLS) 244P
20-year total return: 1,710%
Listed on London’s Main Market since 1994, European commercial property investor CLS (CLS) has a long-term track record of outperforming the UK real estate sector.
A series of studies suggest family-run businesses beat the market. CLS falls into this category having been founded by the Mortstedt family in 1992 and with Swede Sten Mortstedt holding the position of executive chairman until March 2016. He still serves as an executive director.
Another family member is on the board and the Mortstedts own more than half the shares. Less positively this does somewhat limit the liquidity in the shares.
The most high profile development in the company’s history is probably London’s Shard tower. It was one of the three original backers of the project but sold its interest for £30m in January 2008.
The company is opportunistic but adopts a conservative approach. It has a diversified portfolio, primarily located in major European cities and focused on more affordable office space.
Nearly half of rents are indexed to inflation and more than half are derived from governments and/or major corporations, reducing the risk of default.
In the aftermath of the financial crisis investors enjoyed strong capital gains from buying property firms and CLS was no exception. While these might be harder to come by, the firm looks an attractive name to hold on to for income, with Liberum’s forecasts implying a decent forward yield of 3.3%.
CRANSWICK (CWK) £29.10
20-year total return: 1,770%
Food manufacturer Cranswick (CWK) has served up a stunning 1770% total return over the past 20 years, the shares powering higher on the delivery of consistent sales and profit growth.
Tapping into the British public’s insatiable appetite for bacon, pork and sausages has proved a profitable line of business for Cranswick, whose growth has been supported by tasty levels of capacity-boosting capital expenditure and in more recent years, a rapidly growing export business.
Cranswick has proved increasingly popular among yield-starved income seekers, the cash-generative concern having racked up 29 years of unbroken dividend growth. Formed in the 1970s by farmers in East Yorkshire to produce pig feed, Cranswick evolved through organic development and acquisitions into a high-quality fresh pork, poultry and gourmet products supplier to the supermarket and ‘food to go’ sectors.
Over the past 10 years, Cranswick’s UK pork sales have increased from roughly £600m to more than £1bn per year, while the company has also built scale in the poultry market through two acquisitions.
With an eye on future-proofing its profit streams, Cranswick recently acquired Mediterranean food products business Katsouris Brothers, a London-based supplier of continental foods. Katsouris’s products are all non-meat, meaning half of Cranswick’s continental products revenue is now derived from non-meat categories, a canny strategic move given rising demand for vegetarian foods.
Given near-term challenges including a subdued retail market, potential margin pressure from rising domestic pig prices and the impact on migrant labour from Brexit, Cranswick isn’t optically cheap – the shares swap hands for 20.8 times Berenberg’s 2020 139.6p earnings per share estimate – although long-term investors should feast on the food producer for its cash generation and dependable dividends.
CRODA INTERNATIONAL (CRDA) £48.96
20-Year total return: 1,590%
Chemicals companies have historically been a good place to invest with significant share price gains and occasionally generous dividends, and no firm in the sector epitomises this quite like Croda (CRDA).
Its biggest area of business is providing speciality chemicals for the personal care market – health and beauty products like moisturisers, sun cream, deodorants and colour cosmetics – which has grown by an estimated 5.5% a year from 2004 to 2018.
The firm’s focus on premium, faster growth niches in the personal care market mean it has been able to keep up with that momentum over the past couple of decades.
While revenue growth has been subdued in the past few years, the group actually has a history of prioritising profit over market share gains and volume growth. That’s why past results have often shown solid profit despite weak sales.
Combined with consistent dividend growth since 2001, it’s no wonder the East Yorkshire-based company has delivered a total return to shareholders of 1,590% over the past 20 years. A lot of headwinds face the company with wider problems affecting all its markets, so while there are no structural issues with the business we think now might be a good time to exit.
DIPLOMA (DPLM) £16.51
20-year total return: 4,080%
Distribution group Diploma (DPLM) supplies products that companies must have rather than would merely like to have. If you combine this situation with a very well-run business that serves a diversified range of industries then it is possible to understand why it has done so well over the years.
Diploma focuses on sophisticated healthcare and industrial equipment, operating through three divisions.
The Healthcare division has exclusive distribution deals with manufacturers to supply high-end kit to hospital operating theatres and clinical and industrial testing laboratories.
The Seals division supplies original equipment parts for heavy industrial machinery ranging from construction kit to wind turbines, while the Controls division supplies high-end equipment for use in machines as diverse as F1 racing cars, fighter jets and satellites.
By distributing equipment rather than making it Diploma is an ‘asset-light’ business, so it enjoys strong margins. Return on adjusted trading capital has averaged just under 24% over the last five years.
By focusing on products essential to its customers, it has a greater degree of revenue visibility than many firms thanks to repeat business.
Over the last two decades the firm has expanded geographically within its product segments with targeted acquisitions, building a global business.
We think the shares are worth buying as a core holding for a diversified portfolio.
HILL & SMITH (HILS) £11.72
20-year total return: 1,950%
The world’s road and rail networks provide us all with the day-to-day necessities of modern life, and these vast infrastructure arteries need huge investment to build and maintain. Hill & Smith (HILS) has become one of the go-to engineering experts for government transport planning departments across the globe, particularly in the UK, Europe and in the US.
The £917m FTSE 250 company manufactures roadside crash barriers that run along the central reservation of motorways, appear on bends in the road and alongside railway tracks, particularly bridge-side fencing. It also supplies street lighting and pipe network supports and runs a galvanising business that provides zinc corrosion coating protection against rust.
Providing these safety precautions is not terribly glamorous work but it is vital in our increasingly de-risked lives and it has earned Hill & Smith a long run track record as a capital growth and income story, with the shares running up from 68.5p in September 1999 to today’s price more than 1,600% higher.
The stock has put up a total return (including dividends reinvested) that averages 15.6% every year over the past 10 years, according to Morningstar. A 2020 price-to-earnings multiple of 14.5 continues to look good value for a business noted for its ‘strong medium-term outlook,’ as one analyst puts it, even with the uncertainties surrounding Brexit.
JAMES FISHER & SONS (FSJ) £20.63
20-year total return: 2,580%
After listing in 1996, the fortunes of marine engineering company James Fisher & Sons (FSJ) really took off from around 2003 onwards, minus a drop around the time of the global financial crisis.
Having hovered around the 100p to 150p mark for the first seven years after listing, the firm’s shares have rocketed to around £20.10 today. A lot of that is due to a change in the company’s strategy.
Approximately 20 years ago, the grand old business set up in 1847 by James Fisher moved away from heavy shipping to refocus on its more lightweight coastal transportation business as well as marine services.
Chief executive Nick Henry and former chairman Tim Harris joined from P&O with the aim of repositioning the company’s strategy to higher margin services.
With dividends reinvested, the stock has gained 14.1% annually since the middle of 2006, as it diversified away from solely focusing on oil and gas.
Huge improvements in the profitability of its tankships and marine support services divisions in recent years means it was able to easily overcome slumps in the offshore oil industry.
It’s part of the reason why the business also has one of the best dividend track records on the market, increasing its dividend consistently for the last 20 years.
Solid revenue growth in its latest results, but the business has been affected by a number of operational issues. Having always been expensive thanks to its long-term track record, now might be the time to take profit.
JD SPORTS FASHION (JD.) 708.8p
20-Year total return: 9,590%
The best total return performer over Shares’ two decade-long history is JD Sports Fashion, the branded sports and casual wear star turn having delivered a stellar 9,590% total return.
The company behind outdoor retailers Go Outdoors, Blacks and Millets was recently promoted into the FTSE 100 for the first time, the market rewarding the successful transfer of the ‘JD DNA’ into global markets. This was a momentous milestone for JD Sports, established in 1981 with a single store in the North West of England, floated on the stock market in 1996 with 56 stores and subsequently expanded organically and via acquisitions.
Guided by executive chairman Peter Cowgill, in recent years JD Sports has defied the wider UK retail sector doom and gloom. Like-for-like growth in the core sports fashion business has been driven by the successful mining of an athleisure boom among youthful gym-goers and fashion-savvy consumers.
At a time when many UK retailers are fighting for survival, JD Sports is thriving by providing a differentiated proposition to the consumer with an attention-grabbing theatre in stores and online.
Close ties with powerhouse brands Nike and Adidas have helped JD Sports to see off the threat from Mike Ashley’s Sports Direct International (SPD), while the acquisition of the Finish Line business provided a platform for growth in the US, the world’s largest market for sport lifestyle footwear and apparel.
Recent first half results revealed revenue up 47% to more than £2.7bn with profit before tax and exceptional items sprinting 36% higher to £166.2m.
Some investors may fear they’ve missed the boat, but we are staying bullish with the retailer going from strength to strength.