It will be a long road back for Scapa’s share price but at least its re­cov­ery has be­gun

The tape maker has suf­fered many mis­for­tunes since we tipped it. Now its solid re­sponse to coro­n­avirus has re­as­sured in­vestors

The Daily Telegraph - Business - - Business - RICHARD EVANS

HIND­SIGHT tells us that we chose a bad time to pick Scapa, the maker of in­dus­trial and med­i­cal tapes, for our In­her­i­tance Tax Port­fo­lio of Aim‑quoted shares. Our tip was in March 2018, when the shares were at vir­tu­ally their record high. It’s been a long de­scent since then.

The shares have fallen by a thor­oughly painful 77pc over that pe­riod, and the fact that the mar­ket too is much lower – the FTSE 100 has lost 25pc since the day of our tip – is scant con­so­la­tion. We have cov­ered the com­pany’s var­i­ous set­backs in the in­ter­ven­ing months. They in­cluded dis­ap­point­ing an­nounce­ments about trad­ing, the loss of a ma­jor con­tract, the res­ig­na­tion (later re­scinded) of the chief ex­ec­u­tive and the death of an em­ployee in an in­dus­trial ac­ci­dent. All hit the share price. Then coro­n­avirus came along and the shares halved again. Last month we fi­nally had some good news. In a trad­ing up­date Scapa said sales in the three months to the end of June had been “well ahead of its Covid‑19 sce­nario plan”. It added that trad­ing in both the med­i­cal and in­dus­trial di­vi­sions had con­tin­ued to im­prove into the cur­rent quar­ter.

“Scapa acted swiftly to im­ple­ment struc­tural costs changes across the busi­ness in re­sponse to the im­pact of the Covid‑19 pan­demic on the re­duc­tion in prod­uct de­mand, as well as en­sur­ing vari­able costs were closely man­aged to match the new de­mand lev­els,” its up­date said.

It said its man­age­ment of work­ing cap­i­tal – which can sound ar­cane but has been the un­do­ing of many an oth­er­wise sound busi­ness – re­mained strong, while debt was much lower than at the end of the pre­vi­ous fi­nan­cial year, partly thanks to a sale of new shares in May. Scapa said the re­sult of its mea­sures and the im­prove­ment in trad­ing was that “the group’s out­look on full‑year trad­ing profit is trend­ing ap­prox­i­mately 10pc ahead of mar­ket ex­pec­ta­tions”. Beat­ing the mar­ket’s profit ex­pec­ta­tions is a cer­tain way to send the shares higher and they rose by 36.9pc on the day, al­though they have slipped a lit­tle since then. It is sure to be a long road back but we will stick with it. Hold.

Up­date: Gamma Com­mu­ni­ca­tions

We have done rather bet­ter with this firm, a sup­plier of tele­coms ser­vices to busi­nesses: the shares have gained 145pc since we added them to our IHT Port­fo­lio in Jan­uary 2018.

They suf­fered, along with so many oth­ers, in the pan­icky first weeks of the pan­demic but have more than re­cov­ered those losses since then and are not far off a record high reached early last month.

The in­terim re­sults, pub­lished ear­lier this month, did the share price no harm. The com­pany re­ported a 12pc rise in sales to £177m and a 21pc in­crease in prof­its be­fore tax to £26.2m. Gross mar­gins nudged up to 53pc. The firm gen­er­ated plenty of cash and the div­i­dend was in­creased by 11pc to 3.9p. The shares hardly look cheap at about 33 times fore­cast earn­ings for this year, al­though the ra­tio falls to about 29 times when we look at next year’s fore­cast prof­its. The firm has been a con­sis­tent per­former and we will hold.

In­come Port­fo­lio up­date: Ur­ban Lo­gis­tics Reit

As an owner of dis­tri­bu­tion ware­houses for on­line de­liv­ery, it’s no sur­prise that this real es­tate in­vest­ment trust has done well dur­ing the pan­demic. Since we tipped it in Jan­uary last year the shares have gained about 23pc.

The trust wants to ex­pand and has iden­ti­fied some “high‑qual­ity lo­gis­tics prop­er­ties that meet the com­pany’s in­vest­ment ob­jec­tives”. It in­tends to raise the money to ac­quire them by sell­ing new shares. Most will go to in­sti­tu­tions but pri­vate in­vestors will be able to take part in a “re­tail open of­fer”.

De­tails of the of­fer, in­clud­ing the pro­ce­dure for ap­pli­ca­tion and pay­ment, will be set out in a cir­cu­lar ex­pected to be pub­lished next week. The new shares will be sold at 139p, while the cur­rent mar­ket price is 143p.

How­ever, the new shares will not carry the right to a spe­cial div­i­dend of 3.25p that the com­pany de­clared for ex­ist­ing share­hold­ers, so the sav­ing is small. Hold.

Read Questor’s rules of in­vest­ment be­fore you fol­low our tips: tele­graph.co.uk/go/questor­rules; twit­ter.com/DTquestor

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