Sunday share tips: Marshalls, Midas 'Dogs of the Footsie'

In the ‘Inside the City’ column for the Sunday Times, Sabah Meddings was looking at Marshalls, saying the paving slab maker has done good business in that field for 130 years now, with its shares reaching a record high last month after reporting a 12% increase in sales and underlying earnings.

That sales growth was reportedly driven by homeowners cashing in pensions and putting that towards home improvements, as well as a recent surge in demand for road barriers to protect pedestrians from the threat of vehicle-based terrorism.

But it’s not all suburban driveways and council roadworks - Marshalls also has a hand in massive infrastructure projects such as Crossrail in London, and the HS2 high-speed railway.

That diversity has helped the firm shine among its listed peers - Travis Perkins, for comparison, has slumped more than 28% since January.

Its recent stellar performance - £244.3m turnover in the first half - did not mean Marshalls was immune to bumps along the way, with the ‘Beast from the East’ winter storms keeping home improvers inside and their wallets in their pockets.

A 21% rise in sales through June and July, however, showed that it was more than capable of bouncing back.

According to chief executive Martin Coffey, the firm was outperforming the Construction Products Association;s own growth figures at the halfway point of the year.

The firm also boasted little debt, with borrowing expected to be 0.2x underlying earnings by the end of the year, so long as it does not make any further acquisitions.

And there was one more reason for CEO Coffey to smile, according to Meddings, with the company announcing on Thursday that he had made a £345,419 share sale to help a family member buy a property.

That followed a £394,097 sale in March, when finance director Jack Clarke sold £226,606, Meddings wrote.

Marshalls was currently sitting at a solid price-to-forward earnings ratio of 21.33x, with the shares closing at 451.2p on Friday.

That was down 5.1% from its record high of 483.4p on 16 August, when the board declared an 18% increase in the interim dividend.

Its competitor Forterra, which Meddings said did not have the same domestic exposure, was trading at a price-to-forward earnings ratio of 11.45x.

“While Marshalls says its main customers are the wealthy over-55s, it is not unknown for them to hold on to cash when caution strikes,” Meddings said.

“Marshalls appears fully valued compared with its peers, so it would take a brave investor to buy at this price - especially when directors are taking their profits.”

Over in the Mail on Sunday, Joanne Hart was back looking at her ‘Dogs of the Footsie’ portfolio for the ‘Midas’ column, noting that while savings rates languished around the 1% mark, the Dogs were boasting average annual income of more than 8%.

The ‘Dogs’ is a portfolio of the 10 highest-yielding stocks on the FTSE 100, created for the Midas column.

Hart said such high yields usually meant one of three things - the stocks were undervalued in the market, the shares were heading for a fall, or brokers believed there would be a cut to future dividends.

The answer as to why these 10 stocks were in such circumstances now depended entirely on who you asked, Hart said.

Midas based the Dogs portfolio on a strategy developed by US market watcher Michael O’Higgins, who suggested that investors would see great benefit from buying the highest-yielding shares on the Dow Jones Industrial Average.

Hart wrote that for many years, that strategy worked well for Midas, with the value of the portfolio doubling between 2012 and 2017, and shareholders enjoying above-average dividends too.

The picture was much more complicated this year, however, with dividends soaring but share prices remaining stubbornly stable.

In February, the Dogs portfolio consisted of energy retailers Centrica and SSE, housebuilders Taylor Wimpey and Barratt Developments, insurers Direct Line and Admiral Group, tobacco peddler Imperial Brands, along with Lloyds Banking Group, Marks & Spencer and BT.

Now, four of those Dogs were no longer Dogs, with Admiral, Lloyds, M&S and BT being booted out earlier in the year to be replaced by housebuilder Persimmon, telecoms conglomerate Vodafone, investment firm Standard Life Aberdeen, and Russian coal and steel producer Evraz.

That meant there were now three housebuilders in the portfolio - a sector that has had a tough year, with concerns around stagnating house prices, rising interest rates and languishing consumer confidence hitting sentiment hard.

There have also been large scale share sales by executives across the industry, according to the Mail on Sunday.

But the firms themselves remained optimistic in their communications with shareholders, turning in strong sets of results in recent weeks and restressing their confidence in the future of the sector.

That divergence between what boards and saying and what the market was thinking was creating a great deal of uncertainty, with some brokers believing the stocks were a sure buy given the dividend yields, and others suggesting the prices were sure to fall.

In February, the Dogs portfolio was worth £19,482, and today it is valued at £17,797, with most of the dogs being domestic businesses and suffering one way or another about ongoing uncertainty over the UK’s economic and political future.

That sentiment was unlikely to change as fears over a no-deal Brexit persisted, and as a result, companies remained in the dark about the outlook for their businesses.

On the upside, however, the portfolio was still beating the FTSE 100 index.

“The average yield on the FTSE 100 is also worth noting – just over 4 per cent,” Hart wrote.

“It is still much higher than anything on offer from banks and building societies but it is roughly half of that on offer from the Dogs right now.”