The veteran investor quizzes small-cap enthusiasts about their favourite shares. Why private investor Derek Calrow invested in flooring specialist James Halstead plc
I have known Derek for many years as a friend and stockbroker. He spent 50 years with Bury stockbroker James Sharp & Co, and vividly remembers the cut and thrust of the trading floor in the 1960s before technology and computer screens took over.
I have always admired and shared his very conservative approach to investment and appreciated the time and thought he puts into analysing companies.
Over the years, Derek has demonstrated an exceptional talent for unearthing value stocks which many of us had never heard of previously. He has focused particularly on asset-rich stocks ranging from independent family brewers to palm oil producers and water utilities.
A true son of Bury, he has been a life-long supporter of Bury FC, Bury Grammar School (where he was a former pupil), Bury Parish Church and other local charities. He has the distinction of owning a 1934 Leyland Lion single decker bus which he makes available for charitable causes. His chosen share is James Halstead plc.
JL: When did you first buy this share, and what attracted you to it?
DC: In 1958, when I joined James Sharp & Co, then members of the Oldham Stock Exchange, the textile industry was steadily downsizing. Around the Greater Manchester area there were a large number of manufacturing companies — brewing, engineering, food, paint, paper and textiles — many of them family-controlled public limited companies.
Private client shareholders tended to invest in these local companies, where they trusted the management and had some knowledge of the industries. Institutional investors were far less aware of and involved in these regional companies than they are today.
Against this background, James Halstead floated in 1948. It was a family-controlled textile company specialising in waterproof materials, garments and fabric processing, and it was from these waterproof products that vinyl floor covering derived.
In the early days, profit performance was extremely erratic. In 1952, even the preference dividend was deferred. The introduction of outside management and diversification were not particularly successful. By the late 1980s, however, James Halstead Plc had been transformed from a textile company into a major international floor covering manufacturer.
While the shares had just been a few coppers in the nadir of 1974 — what an incredible opportunity missed — I first purchased them in 1989 when the company had a market capitalisation of approximately £30m.
How has the share performed?
Under the leadership of Geoffrey Halstead as chairman [he is stepping down in December after 17 years] and his son Mark Halstead as chief executive, the company prospered immensely, demonstrating outstanding growth and becoming one of the best performers on the Alternative Investment Market (Aim) through the years.
It is now capitalised at over £900m, thus my original holding has appreciated 30-fold over nearly 30 years. Apart from capital growth it has been an outstanding dividend payer delivering annual increases, plus several substantial special dividends. The full-year dividend declared in October was a record breaker. Even so, the company’s current cash balances still total approximately £55m. Halstead has delivered the “double whammy” which shareholders ideally seek — real profits growth plus a substantial upward re-rating.
What percentage of your portfolio does your Halstead holding currently represent?
My Halstead shares represent about 3 per cent of my total assets and have been added to over the years — I am delighted to say that many of my former clients have benefited as well. I would be a further buyer on any price weakness.
How do you see the future for your chosen share?
I view myself very much as a long-term holder. Halstead may well decide to employ some of its substantial liquidity in buying-in shares for cancellation. This was done some 15 years ago, benefiting the remaining shareholders and helping to increase earnings per share. One of the great skills of the group has been its emphasis on increasing turnover through its own salesforce rather than employing agents in export markets. It has always paid great attention to research and product development and as such is very much viewed as a market leader.
If there was a cloud on Halstead’s horizon, it would be the potential impact from public expenditure cuts on the company’s UK sales, since its products are sold in schools, hospitals and other state-funded institutions currently feeling the pinch.
I would be saddened to see James Halstead disappear as an independent company, however I am sure that the group is viewed with admiration and probably desire by major international flooring groups.
John Lee, the FT Money columnist, spoke to Derek Calrow, who has a financial interest in the company mentioned. Lord Lee, a former director of James Halstead, currently has no holdings in the group but members of his family are investors. The views expressed are personal.
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