There’s been plenty of news flow from the investment community regarding the economic state of China, and the price of oil and other commodities that has sent the share prices of well-known blue-chips crashing to new lows.
The volatility that began last year shows no signs of abating with the FTSE 100 swinging from highs to lows within a range of 5,500 to around 6,000 points. It’s worrying though that the lows seem to be getting lower, which could spell trouble.
Scratching beneath the surface
While all of the news is about under-pressure blue-chips, there are plenty of cash-rich profitable companies that are worth a look and I’ve selected three to review today:
Photo-Me International (LSE: PHTM) is a UK-based company engaged in operating photo booths and coin operated products including washing machines and car washes.
Sprue Aegis (LSE: SPRP) is in the business of the design, sale and marketing of smoke and carbon monoxide (CO) detectors and accessories.
And PayPoint (LSE: PAY), through its subsidiaries, provides clients with specialist consumer payment and other services and products, transaction processing and settlement services.
Beating expectations
True, these companies aren’t the most exciting, but all are profitable and boast plenty of net cash on the balance sheet so aren’t beholden to banks should the economy and trading conditions take a turn for the worse.
However, this isn’t the case currently, especially where Photo-Me is concerned. This morning the company released news that the strong trading that the company had witnessed in Japan as the My Number programme is introduced had continued into the third quarter. It saw a better than expected performance here, coupled with the year-to-date performance of the rest of the business where the recent laundry roll-out is also producing promising results. This led management to believe that pre-tax profits for the full year would be in excess of £40m. However, if trading in Japan continues to be this strong, this figure would again need to be upgraded.
Current forecasts for the company put the shares on a rather punchy 21 times forecast earnings according to data from Stockopedia. However I suspect that this will start to recede as analysts again have to revise up their earnings target.
This bodes well for shareholders as the board revised the dividend policy recently to include a special dividend taken from excess cash over £50m on the balance sheet. Given that there’s currently £66m, I’m expecting a bumper payout in November.
Not to be outdone, Sprue Aegis recently announced it had over £22m, or nearly 20% of its market cap, in cash. This was despite investing in additional stock to avoid any disruption to its supply chain as the Chinese factory that builds most of its products relocated to another site.
PayPoint also reported that the group maintained a strong balance sheet, with cash of £56m, up £10m from 30 September. Although the cash balance includes amounts held to settle short-term client obligations of £28.3m, the cash that belongs to the company equates to around 6% of the market cap and it’s none too shabby.
Dividend appeal
As well as the cash on the books, theese companies are also set to pay dividends in excess of the market as a whole with 4% at Sprue Aegis, 5% at Photo-Me and over 6% at PayPoint – what’s not to like?