CWM at 10: five stocks that blew the lights out

The FTSE 100 may have only delivered a fairly modest 68% rise over the past decade, but within that one stock, Ashtead, has rocketed by 71 times the market’s return for anyone who invested in it at the start of 2009.

The FTSE All Share fared better than its blue chip counterpart, gaining 84%, but all the top five stocks featured here have delivered quadruple digit profits over that period.

To mark Wealth Manager's ten year anniversary, we talk to seven fund managers who shrewdly back some of the UK's massive winners over the last 10 years. 

 

Ashtead

Share price return: 4,828%

Sector: Support services

Chris St John, Axa Framlington UK Select Opportunities

‘Ashtead is an equipment rental business and makes the vast majority of its profits in the US. We originally invested in the company back in 2009.

 ‘Historically it was a very cyclical business, but the great financial crisis, changed the mindset around capital ownership, in a world where capital and debt were scarce.

‘Construction companies used to own their own equipment to carry out projects, but they realised that they were tying up loads of capital needlessly by owning it.

‘Going into the financial crisis, Ashtead was well-positioned, with low debt and a young fleet.

‘For the equipment rental industry to grow, there has to be a high level of trust and they’ve been very good at building that faith from its customer base. To illustrate the point, if you’re building something that needs a concrete pourer and you have the employees there to use it, the concrete needs to arrive on time because a construction company’s margins can be eroded quickly if it has workers standing around.  

‘Also, over the years, the regulatory barriers have consistently gone up, with health and safety and increased liabilities around corporate manslaughter. The equipment needs to be well-maintained and of a certain quality.

‘US economic growth has been strong and if you look at the percentage of GDP spent on infrastructure, it is at the lowest level since the 1940s. There is a big latent spend on infrastructure.’

Avon Rubber

Share price return: 3,182%

Sector: Aerospace & defence

AAA-rated James Baker, Chelverton UK Equity Growth

‘We were relative latecomers to the Avon Rubber story, with the UK Growth fund, which launched in October 2014, making our first investment in March 2015 at 722p.

‘Avon comprises an unusual combination of businesses addressing the defence and dairy markets, linked by a common heritage in synthetic rubber engineering. Consistent product innovation has led to market leadership positions and the creation of significant business moats.

‘Its larger protection division is the lead supplier of gas masks to the US military and its allies, both for standard infantry masks and more specialist higher value products for the air force, navy and special forces – where the group has recently secured significant programme wins.

‘In dairy, Avon supplies consumables (liners) and ancillary equipment to milking parlours, and through successful product innovation. Its own patented products are winning market share by delivering higher milk yields and reducing infection risk to dairy farmers.

‘We like Avon because it ticks all the boxes in our screening process, with strong market positions supported by intellectual property, meaning it can command high margins – over 16% at the Ebit level last year.

'This margin profile coupled with relatively low fixed assets and working capital to sales ratios mean that Avon is highly cash generative, giving the opportunity for self-funded inorganic growth, an increasing dividend yield and one-off cash returns to shareholders.’

Howdens Joinery

Share price return: 3,631%

Sector: Support services

Elaine Morgan, Kames UK Smaller Companies

‘Looking back 10 years, there was an opportunity to invest in a proven business model with significant roll out growth potential which would also yield scale benefits to margins. Usually these opportunities are priced expensively by the market, but at the time the potential was not fully recognised in the valuation, as the outlook was clouded by market concerns over the legacy issues relating to the divestment of MFI and by the caution overhanging markets post the financial crisis.

‘As a vertically integrated supplier of kitchens and joinery, Howdens is focused exclusively on supplying builders with the right product at the right time. It has grown strongly over the last 10 years due to its strong competitive proposition, the growth in the trend of the "done for you" kitchen market and depot roll out growth.

‘Ten years ago the business had just over 440 depots, this has grown to over 650. We expect market share gain to continue as recently opened branches mature and the company works towards the 800 target. Howdens makes strong operating margins, is cash generative and has a strong balance sheet.’

Rightmove

Share price return: 2,638%

Sector: Media

James Thomson, Rathbone Global Opportunities

‘We’ve held Rightmove since April 2009, and it’s delivered more than a 1,400% return. These sorts of winners don’t cross our paths often, but when they do, it’s because they’re an industry game-changer. We won’t achieve those returns again, but we think Rightmove can still deliver solid returns over the longer term.

‘Rightmove enjoys around 80% market share. It charges estate agents to list properties on its website – the key to the investment case is its ability to increase that monthly subscription by putting up prices or providing additional services. And when one agent buys the premium package, the others quickly follow suit.

‘Estate agents are only willing to pay more if Rightmove is finding property buyers and getting instructions to sell. And they are, 70% of all purchase leads are now generated online. There are competitors, but no company has ingrained itself in the psyche of the property market like Rightmove.’

Rightmove

AA-rated Julian Fosh, Liontrust Special Situations

‘Rightmove possesses all of the core intangible assets that we look for [in our economic advantage process]: intellectual property, high recurring revenues and a strong distribution network. Perhaps the strongest of these assets is its distribution network, which puts it in an incredibly strong competitive position.

‘This has proven resilient over the years to competition from the likes of Zoopla and OnTheMarket. Rightmove’s property portal has consistently had a market share of well over 70% for both desktop and mobile devices.

‘Rightmove’s dominant market position means that its services are a must-have for estate agents who want to reach the widest number of potential property buyers. Rightmove has historically been successful in not only increasing the number of estate agents using its services but, perhaps more importantly, up-selling these agents more services.

‘It is ultimately exposed to the health of estate agencies and the wider property market. However, were market conditions to deteriorate, we think its intangible barriers to competition would provide some protection.

‘We have held the shares since 2010, and the shares now trade at around 6x what we paid for them.’

JD Sports

Abby Glennie, investment director, UK Smaller Companies

Aberdeen Standard Investments

‘Having owned the stock at various times over the years, we bought heavily into JD Sports in June 2015, at around 134p, and remain very positive on the investment case. The shares are now 461p, so 226% higher.

‘A key strength of JD Sports is its relationships with sports brands – it’s seen as a trusted partner, providing an attractive growth channel for sportswear brands. Nike frequently references JD in its investor presentations.

‘The European businesses are showing improved trading and profitability, but importantly for us, it’s the potential in the US. It acquired Finish Line in 2018, a large, but underperforming player in the US.

‘We have confidence the management can turnaround Finish Line through improved access to product given the strong relationships with the brands, an increased mix of clothing relative to footwear, which will improve margins, improved store formats, and a better brand proposition.’ 

JD Sports

Share price return: 4,121%

Sector: General retailers

 AA-rated Eustace Santa Barbara, Marlborough Special Situations

‘We first bought JD Sports in 2011 at between 40p and 50p and today it’s trading at around £4.50, so it’s been a strong performer for us.

‘Despite the woes afflicting much of the retail sector, it has bucked the trend. In January it reported double-digit sales increases and revenue growth has been achieved without resorting to discounting and margins remain strong.

‘One of its major strengths is its relationships with key brands, notably Adidas and Nike, which mean it gets large allocations of the most in-demand products, plus exclusive ranges. This draws customers to its shops and website, providing an edge that’s based on products rather than price.

‘Beyond the UK, the company has already made assured strides in Western Europe and Asia-Pacific. Last year, it acquired US chain the Finish Line. Early progress here is encouraging and evidence is mounting it may be able to replicate its success globally.’