Star fund manager Nick Train has consistently beaten the market over many years. That’s why I think it’s always worth keeping an eye on the UK stocks in his portfolios. Two of these — consumer products company PZ Cussons (LSE: PZC) and fizzy drinks firm AG Barr (LSE: BAG) — reported to the market today.
Turnaround potential
Nick Train first purchased shares in Imperial Leather owner PZ Cussons (LSE: PZC) towards the end of 2019. The company’s valuation has climbed roughly 20% since. This morning’s interim results may not have added to the momentum but I do think they’re encouraging considering the troubles PZ has encountered in recent years. These include a challenging economic backdrop in Nigeria (a key growth market) and consumer uncertainty in Europe.
As a result of the huge demand for hand wash and sanitiser, overall revenue rose 14.6% to just under £313m in the six months to the end of November. Reported pre-tax profit came in at £36.3m — 1.6% lower than over the same trading period in 2019 due to some one-off costs.
For me, however, one of the big highlights of today’s statement was the reduction in net debt to £18.2m. Back in 2019, it stood at £137.7m. A further positive was the interim dividend being maintained. Yes, a gently rising dividend is preferable. However, I don’t think investors will be too disgruntled by the 2.67p per share cash return. Let’s not forget that many, far larger companies have had to halt their dividend payments entirely.
PZ is not a share for the impatient. In addition to uncertain trading conditions and higher costs, the new management team is also attempting to turn around key brands and simplify operations. This is a multi-year job and goes some way to explaining why the company remains a contrarian pick.
As a committed buy-and-hold investor, however, this is probably what attracted Nick Train. It also chimes with my own Foolish approach to investing, namely holding quality stocks for the long term. I don’t own a slice of PZ Cussons just yet, but today’s news does suggest to me that the worst could be over for those already invested.
Ready to fizz?
Another one of Nick Train’s favourite UK shares (and mine) is IRN-BRU producer AG Barr (LSE: BAG).
Today, Barr said that revenue for the last financial year would now be somewhere in the region of £227m. That’s less than the £255.7m achieved in FY19/20. Nevertheless, it’s still “marginally ahead” of what the company had expected. Positively, the beverage-maker also thinks pre-tax profit will be higher than analysts had been predicting.
“So, why aren’t the shares rallying?“, you might ask. Similar to PZ Cussons, at least some of this must be down to Barr’s foggy earnings outlook now that we’re back in lockdown. Talk of restrictions lasting until the summer could also be keeping a lid on investors’ enthusiasm for the stock.
Not that I — or probably Nick Train — am concerned. Barr has £50m in net cash on the balance sheet. This should be enough to see it through to the other side.
At 21 times forecast FY22 earnings, the shares aren’t cheap. Then again, this could turn out to be a reasonable price to pay later in 2021. Once the hospitality sector reopens, I think AG Barr could get its fizz back.
