April Stock Market Purchase – PZC IMB Victrex


April has brought about the new tax year and with it comes a fresh tax free investment allowance. The temptation would be to buy into the markets with as much cash as I have on hand in order to start benefiting from this allowance immediately. The long held wisdom is to invest at the beginning of the year so that you let compounding get to work immediately and do the heavy lifting for you. By investing at the beginning of the tax year as opposed to the end will leave you with an extra year of returns. After all time in the markets is more important than timing the markets.

The problem is I see many parts of the markets to be overvalued. Even bad stocks which have slashed earnings and provided guidance cuts have surged upwards. Such is the state of markets at present. Every potential pitfall is overlooked as investors clamour for equities (stocks). What other option do they have? Interest rates are far too low at present to provide a decent income. It seems that the stock market is the only game in town and prices reflect this.

It is wired in me to not overpay. That is why I am cautious at the moment. I know market timing is a fools game and that is why I continue to buy stocks every month using my monthly stock market purchase programme. This way if markets were to rise even further, I would be glad I bought. And if markets fall, I would have enough dry powder on hand to buy quality shares on the cheap. This is exactly what happened this past December – when the markets took a jolt downwards, I pounced.

I have so far not added any money to my 2019/2020 Isa account  as I have found nothing substantial to buy. I still have a little money left over from the previous ISA and I received a good chunk of dividends in the last quarter to top it off.


I am sure as the year progresses, I will find better buying opportunities. But for now, I only bought 3 shares last month. The shares bought and the prices paid are as follows:

  • Imperial Brands – Bought 7 shares at £25.83 each. Dividend Income £13.16
  • PZ Cussons – Bought 81 shares at £1.95 each. Dividend income = £6.5
  • Victrex – Bought 12 shares at £23.5 each. Dividend income = £7.08

The three purchases in total have added £26.74 in dividends to my portfolio. My expected annual dividend income now stands at £3,304.

As Victrex is a new constituent in my portfolio, I thought it best to do a bit of a write up on it.

Victrex is the world’s largest manufacturer of polyetheretherketone, a high-performance polymer known as PEEK. The company invented the the material 40 years ago. Victrex control most of the market of PEEK today even though its patent expired in 2000 – though it continues to patent new manufacturing processes. This has allowed it to keep its position of top dog in the PEEK world.

PEEK is special because it is easily moulded into parts. It gives customers the benefit of greater design flexibility and easier manufacturing through injection moulding. It is also resistant to friction, fire, chemicals, corrosion and electricity.

The ongoing innovation has apparently garnered a 60% market share of PEEK worldwide and — judging by the aforementioned margin and ROE stats — has also created a sizeable competitive advantage.

Looking at the financials indicates that Victrex is a special business. When the business was floated in 1995, sales were £31m and operating profit was £10m. Today those figures are ten times as much. The growth has almost been a straight line upwards bar a small blip during the financial crises.

The company has a a free cash flow conversion of over 100% which is exceptional – all its earnings are converted into cash. This is is very important. This has allowed the company to regularly pay special dividends to investors. Since 2010, extra payouts totalling 250p per share have been distributed alongside ordinary dividends totalling 390p per share.This is amazing considering the share price was only around 800p back then. In under 10 years, you have got close to 50% of your money back through dividends alone!

Victrex has high operating margin of close to 40%. Not only that but it has been consistently high over the years. Even during the financial crises it was close to 25% which is exceptional. So why is this important? Having a high operating margin indicates that the company may be enjoying pricing power over customers — which in turn may indicate a strong competitive advantage and perhaps relatively predictable earnings.

The Return on Equity is also a very healthy 22%. Having high returns on equity essentially means that a business does not need to retain and reinvest too much profit to generate attractive rates of growth. Instead cash can be used to pay shareholders dividends. The only downside with Victrex in this regard is that returns on equity have been falling over the years – this is something I need to keep an eye on.

All the above figures mean that Victrex has provided a healthy return to shareholders over the years.

The share price fall of late was due to a recent trading statement indicating a drop in revenues as compared to last year. This was partly due to a huge one off consumer electronics order the company received last year. Even though the short term may be wobbly, I believe Victrex is a good enough company to wobble the storm and prove to be a good long term investment



At the time of my purchase, Victrex was trading at a P/E of about 18. The company has regularly traded in the 20 – 24 P/E ratio band. 18 seems to be reasonable valuation for a company of Victrex quality in todays market. No doubt, if the share price were to fall further and valuation get cheaper, I will be adding more of this industry leader to my portfolio.

Being an industrial, I was sceptical of Victrex. I don’t hold many industrial companies in my portfolio as they are too cyclical for my liking – their performance is tied to the economic cycle. The only other industrial I own is XPP which I have been buying over the past few month. My investment in XPP has so far worked wonderfully well for me with it being up 12% in under a year so I have warmed to high quality industrial companies.

Furthermore, a number of industrial are trading at attractive valuations due to stock price falls across a number of names. This may be due to investors having a gloomy outlook of the global economy and thinking industrials will not do well. Only time will tell.

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