Consumer-focused stocks will surge ahead as the outlook for global growth improves steadily

Huge interest rate rises fail to prevent businesses recording surprisingly solid results as economic fallout from cost of living crisis subsides

While many investors bemoan the lacklustre performance of the world economy, this column takes a very different view. A 3.2pc global growth rate last year, in spite of interest rates reaching multi-decade highs across the developed world, represents a surprisingly solid performance.

Then there is the prospect of an improving GDP growth rate as inflation falls to its 2pc target in the US, eurozone and Britain. This provides scope for interest rate cuts. The long-term outlook for global growth is hugely upbeat.

As a result, Questor plans to persevere with consumer-focused stocks that have struggled to deliver impressive financial performances in recent years. The end of the cost of living crisis, alongside a gradually improving economic outlook, means these companies should experience stronger operating conditions, growing profits and higher share prices.

For example, our Inheritance Tax Portfolio’s holding in Team17, the video games publisher, has thus far proved a disappointment. Having soared more than 200pc in 18 months after its addition to the portfolio in June 2019, its shares have slumped, in line with many consumer-focused companies. The stock now trades 6pc down on our notional purchase price, despite having outperformed the FTSE Aim All-share index by 10 percentage points since June 2019.

The company annual results, released last month, were somewhat underwhelming. Sales increased 12pc, but profitability was impacted by tough operating conditions alongside impairment charges, as a larger proportion of sales were generated by lower margin third-party games and higher costs. On an adjusted basis, pre-tax profits fell 39pc year on year.

In response, the company has restructured its main Games Label division as it seeks to lower costs. In the meantime, its sound financial position means it has the required breathing space to implement a refreshed strategy under a relatively new management team. For example, it currently around £39m in cash it could use to fund further acquisitions.

Though its share price has fallen some two-thirds since the start of 2021, Team17 trades on a rather lofty price-to-earnings ratio of around 15. This is not a bargain buy, especially when compared with other smaller consumer-focused companies, but it is significantly below the earnings multiple of 64 on which the stock briefly traded in early 2021. This suggests that investors have priced in further challenges for the business over the near term.

‘With a net cash position of £5.5m, Bioventix appears well placed to deliver further share price growth’

Given its attractive long-term prospects amid falling inflation, declining interest rates and an improving economic outlook, the stock deserves more time to recover from its present slump.

Although we anticipate further share price volatility due to downbeat investor and consumer sentiment, as well as the uncertainty prompted by substantial changes to its business model, the company none the less offers long-term recovery potential.

Update: Bioventix

Our Inheritance Tax Portfolio holding in Bioventix was a good purchase. The manufacturer of antibodies used in diagnostics has generated a 31pc capital gain since we tipped it in January 2020 – outperforming by 51 percentage points the FTSE Aim All-share index over the period.

The company’s interim results show it is making encouraging overall progress. Revenue increased 13pc, while pre-tax profits rose 16pc compared to the same period last year, but changes to corporation tax meant net profits rose by a more modest 8pc.

Its performance was buoyed by strong growth in demand from China. Some operational challenges affected sales relating to troponin antibodies, which are used in heart disease diagnosis, but the company does not expect these to persist.

And with a net cash position of £5.5m providing scope for further research investment, Bioventix appears to be well placed to deliver further share price growth.

With a price-to-earnings ratio of around 27, the company’s shares are by no means cheap. But with their long-term growth potential intact, they will remain a holding in our portfolio.