Despite dismal returns, the maker of Vimto still has enough juice left to whet our appetites

Nichols – whose share price has fallen 37pc in the last six years – may continue to test our patience, but the company appears to have an increasingly positive future

Questor regularly emphasises the merits of adopting a long-term approach to investing. After all, holding stocks for years, rather than days, weeks or months, affords them the time required to deliver on their potential.

Selling too soon can also crystallise losses, so deciding when to give up hope of a recovery is a delicate balance.

However, several of our inheritance tax (IHT) portfolio holdings are now beginning to stretch the limits of our patience. Their disappointing returns have left us wondering whether it is best to sell up and invest elsewhere instead of persisting.

Vimto producer Nichols, for example, was added to our portfolio all the way back in June 2018. Its shares have fallen by 36pc since then, compared with a 31pc slump for the FTSE Aim All-share index, with the company experiencing challenging trading conditions in the UK.

Its recently released full-year results showed that sales of its packaged products rose by just 1.3pc in the UK as the cost of living crisis weighed on consumer sentiment.

Given that the UK contributes around two thirds of the company’s total packaged sales, the company’s overall revenue increased by a rather pedestrian 3.5pc. Adjusted earnings, meanwhile, rose by less than 2pc on a per share basis. The company’s future, though, is becoming increasingly upbeat. Those UK figures were in stark contrast to the company’s international performance, where sales rose by 16.8pc.

With the business expanding into additional territories, its international sales growth could remain brisk over the coming years, having a growing impact on the company’s profitability.

Things could look up in the UK, too. Inflation should fall to the Bank of England’s 2pc target within a matter of months, ending the cost of living crisis and reducing pressure on household budgets.

Although the company was able to largely offset rampant inflation via price rises, lower inflation will ultimately aid the business’s future prospects. It should prompt higher demand for discretionary goods among consumers, as well as increased investor interest in companies that are best placed to benefit from an improving economic outlook as interest rates are cut. Nichols could fit the bill.

With the company seeking to move into adjacent market segments via the release of new products, such as an energy drink, it is well placed to capitalise on a more sanguine outlook for consumers.

Of course, an improvement in the company’s operating environment could be delayed by any number of known unknowns. A £10.7m increase in net cash reserves to £67m over the past year means the business has the financial resources to survive over the short run.

The company’s upbeat long-term prospects, sound strategy and solid financial position means our patience is likely to last.

Therefore, while Nichols’ share price decline has undoubtedly been hugely disappointing over an extended time period, it will remain a holding in our IHT portfolio as this column seeks to practice what it preaches.

Update: Tristel

Our IHT portfolio holding in Tristel is proving to be anything but a disappointment. Shares in the supplier of disinfectant products to hospitals have risen by 96pc since our purchase in December 2018.

In doing so, they have outperformed the FTSE Aim All-share index by 111 percentage points. Given the upbeat performance evidenced in the company’s recently released half-year results, further capital growth is likely to be ahead.

The company experienced a record six-month period, with revenue rising by 20pc and pre-tax profits growing by 34pc as it benefited from increased sales volumes and higher prices.

It launched its high-level disinfectant for ultrasound probes in the US and subsequently received approval for use of the product in Canada. With further submissions for its products in the pipeline, investor interest in the stock could continue to grow.

With around £11m in cash and no debt, the company’s balance sheet remains sound. While a forward price-to-earnings ratio of 34 is rather heady compared with many smaller companies, Tristel’s strong financial performance and attractive growth prospects mean it deserves more time to fully deliver on its potential. Hold.

‘With the business expanding into additional territories, its foreign sales could be brisk in the coming years’