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Progress at Barclays and ConvaTec

By Chris Bailey | Thursday 2 August 2018


Disclosure: I own shares in one or more of the stocks mentioned. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from ShareProphets). I have no business relationship with any company whose stock is mentioned in this article.


I gave some freebie advice to the Barclays (BARC) board a week or so ago HERE and thankfully today's first half numbers from the banking behemoth did not include an unwise stab at the US retail space. What they did say however was quite sensible stuff and there has been a bit of progress on most fronts including capital generation to support the 3%+ yield, good progress on cost control and even an investment banking unit which did not disappoint for once.

I know banks are always a leap of faith but I think you have a bit of protection today - despite the global uncertainties - due to the valuation metrics even beyond the yield you could get on one of the bank's own savings products. I have mentioned the geek maths angle before and the continued push towards a full and pukka double digit return on tangible assets means this should trade at tangible book value...which at 259p is a cool 20% above the current share price. It is not going there directly but you can make a double-digit gain - and then have a think about it all - by snaffling a bit of stock now. Still better than the more conventional way of putting money 'in' the bank!

I had to suppress a laugh when colostomy-and-much-more medical devices company ConvaTec (CTEC) kicked off this morning's conference call with the observation it had generated a 'solid performance' during the first half. Anyhow since my initial love-up piece, the shares have gone sideways-to-up and today's numbers show the continuing scope.

Admittedly 2.6% organic growth and a small fall in operating margins does not sound that exciting but, as noted six months ago, this is from the backdrop perspective of a business under pressure from production problems and private equity shareholders dumping their holdings as lock-ups expired. Full year hopes were held, which means a slight acceleration in the growth rate and higher EBIT margins. The new CFO continues to come across well, which is just what this company needs in terms of discipline, new systems and cash conversion. On this basis, good to see the debt level nudge down during the first half but, I feel, much more to come. The new wound care products look good, ostomy is back to growth and the smaller continence and infusion devices (you can guess what they are!) divisions had good growth. Certainly there are a couple of challenges out there including some patchy growth in a couple of its older wound products but, bottom-line, corporate life is moving in a good direction. Last time I concluded:

'If I run the numbers the stock is trading around a x16 forward EV/ebit multiple and doesn't offer much of a dividend yield. Neither are individually stunning but it is all about where the company is going rather than where it is. The next big level is undoubtedly the 225p float price re-attainment. My feel for 2018 is that it will achieve this and a bit more. In short, I hope I will not have to buy one of its colostomy bags and related for a while but as for the shares...I like them here. Buy.'

As I write, here we are at that 225p level. I think the future is bright and hopefully - personally - not with a need to try out directly one of the products.


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