When people look back at the stock market in 2022 what will they say? It was turbulent, inhospitable and at times, downright dangerous. Emerging unsteadily from the pandemic, shares have been savaged by war in Ukraine, soaring energy prices, rampant inflation, political upheaval and a decline in confidence among consumers, businesses and most investors.
Smaller companies have suffered the most. The FTSE AIM index, which focuses on up-and-coming businesses, has tumbled by around 50 per cent since January. But firms have been hit across the board. The FTSE250 index has lost some 20 per cent of its value over the past 12 months and the Small Cap index is not far behind.
Only the FTSE100 index of Britain’s largest listed companies has managed a semblance of resilience, although it too will be lucky to end the year ahead of where it started.
Powering ahead: Defence giant BAE Systems, animal feed supplier NWF and silicon chipmaker EnSilica
Midas has certainly not escaped from the general malaise. Some shares have been brutally punished for missing forecasts, falling foul of supply chain issues or even just being in out-of-favour sectors, such as early-stage mining. Fortunately, most have beaten their indices and there have been some big wins too – companies that are positively thriving in today’s environment.
NWF
Stability has an appeal all of its own in uncertain times, exemplified by NWF, a 150-year-old business supplying fuel, food and animal feed to customers across the UK. Its shares have risen almost 30 per cent to £2.54 since Midas recommended them at the beginning of the year – and the price should continue to gain ground.
More than a million households heat their homes with oil. Many of them – from wealthy landowners to rural cottages – are supplied by NWF. The group also delivers fuel to commercial customers, including farmers, factory owners and hauliers.
Business has been brisk. People tend to stock up on oil when they are worried about running out and when temperatures drop. The recent cold spell has had a marked effect, therefore, particularly as Christmas is approaching. Throughout the year, however, concerns about supplies have kept demand high and there is every chance this will continue into 2023.
Chief executive Richard Whiting is also on the lookout for acquisitions to boost growth and news on this should be forthcoming soon.
On the food front, NWF distributes millions of staple products to supermarkets across the country. Goods range from tea and baked beans to dried herbs and spices and NWF works with grocers from Waitrose to Aldi. The spread of produce and customers puts NWF in a good place even if consumers start buying cheaper food from less expensive retailers – and recent trading has been robust.
Feed is a stable business too. Whiting works primarily with dairy farmers, supplying them not just with food but also with advice, including what to feed, when to feed and how much.
Milk prices have been rising this year so dairy farmers are doing well and NWF is benefiting. The group also runs an academy to turn young apprentices into nutritionists.
Brokers expect strong sales and profits growth for the year to May 2023, alongside a dividend of 7.6p (it was 7.5p last year). The firm has delivered annual dividend increases for over a decade and is keen to keep it that way, generating long-term income for shareholders.
Midas verdict: Boss Whiting prides himself on delivering steady growth, and a trading update this week should show his efforts bearing fruit. Existing shareholders should stick with this business. New investors may also choose to grab some stock at £2.54.
Traded on: AIM Ticker: NWF Contact: nwf.co.uk or 01829 260260
BAE Systems
Defence was long considered a dirty word in the investment community. Some still feel this way, but events in Ukraine have forced several investors to reconsider companies whose wares help nations to protect themselves.
BAE Systems is one such stock and the shares have risen more than 25 per cent to £8.41 since Midas recommended them in February.
A trading update last month was upbeat. The group has secured £28billion of new orders this year, including a £4.2billion deal to build five spanking new warships for the Royal Navy. Orders come from around the world, however, and many stretch out into the next decade, suggesting that BAE is well placed to deliver profits growth for years to come.
Chief executive Charles Woodburn expects good results for 2022 and beyond, as governments increase their spending on security and defence. Sales are forecast to increase by around 7 per cent this year to almost £23billion, fuelled not just by new orders but also by the stronger dollar.
The US government is a leading customer and many other deals are transacted in the US currency too. Confidence in the future is likely to translate into rising dividends. Last year, BAE paid out 25p. This year, analysts have pencilled in a 26.5p payout, increasing to 28.5p in 2023.
Midas verdict: Investors who bought BAE at the start of the year have done well. The shares are at an all-time high and have been one of the best-performing stocks in the market this year. The price may not increase at quite the same rate in 2023, but the shares should continue to deliver attractive returns. World peace seems a distant prospect and defence has become a priority for governments the world over. That makes BAE a strong hold (at the very least).
Traded on: Main market Ticker: BA Contact: baesystems.com or 01252 373232
EnSilica
Midas recommended silicon chipmaker EnSilica less than a month ago but the shares have shot up by 50 per cent to 76p since then. The shares were buoyed by a confident trading statement at the end of last month, two contract wins worth almost £3million last week and a growing recognition among investors that this company knows what it is doing.
EnSilica listed on AIM in May at 50p, one of the few flotations to make it when big institutions were turning their backs on new businesses. But EnSilica is a little different from most new recruits to the market. Chairman Mark Hodgkins and chief executive Ian Lankshear bided their time before floating, making sure the company was on solid ground with a rich pipeline of future orders before offering shares to investors. The strategy has worked, not least because EnSilica makes specialised chips that are heavily in demand as the world becomes more dependent on internet connectivity.
The group’s chips are used in car sensors, satellite dishes, medical equipment and industrial machines. Brokers are extremely optimistic about its prospects, expecting sales to more than double over the next three years, from £15.3million to £32million with profits rising even faster.
Midas verdict: EnSilica is a well-run business in an attractive sector. At 76p, the shares have done well but deserve to do better. An exciting stock for now and the future.
Traded on: AIM Ticker: ENSI Contact: ensilica.com or 0118 321 7310
Inspecs
Eyewear group Inspecs is the Midas turkey of 2022. Back in April, the shares were £3.30 and the company seemed to be riding high. Now the stock is just 39p, knocked by a toxic cocktail of plummeting consumer confidence, falling orders and the loss of veteran business leader Sir Ian MacLaurin as chairman earlier this month.
A trading update in October compounded issues first aired at the interim figures two months earlier – weak markets stretching out to next year here, in Europe and further afield. Founder Robin Totterman believes the group will recover and has been buying shares in recent weeks, but few others have taken his lead. He has now replaced MacLaurin as chairman, handing the chief executive job to Richard Peck, an eyewear specialist, formerly with David Clulow.
Midas verdict: Inspecs shares are in a bad place and investors who bought in April have every right to feel aggrieved. Selling now would almost certainly be a mistake, however. Totterman is determined to put this business back on its feet and Peck is an able second in command. Hold and watch carefully for further developments
Traded on: AIM Ticker: SPEC Contact:inspecs.com or 01225 717000
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