Shares I looked at this week (13 June 2025)
Is this company dumping stock at a loss? Can a CEO selling shares be a buy signal? And a company I wrote about exactly one year ago - has the investment prospects improved? VCT, BKS, TPT
Victrex #VCT $VCT.L
This company has been on my radar for a few years, after I read that they were half the global manufacturing capacity for a material called PEEK. Its common name is thermoplastic - having good mechanical strength and able to be used in high temperature environments. Applications for this material span from aviation to medical equipment to cars and electronics. There was a factoid I saw somewhere that over 200m cars have PEEK within anti-lock braking systems (ABS).
The majority of manufacturing happens in their UK facilities, although they have just built and opened a China factory last year.
At a £680m market cap and just under £300m of revenues, plus being a key, dominant specialist in the PEEK industry, the low valuation rating of a UK listing could attract a global bidder at some point from the speciality materials industry.
Victrex have had a few bad years - driven by weak demand in their end markets over the last few years, as well as inflationary cost input pressures as well as energy cost pressures. However, it has now been at least 3 years since they started flagging this all up in mid-2022. They also used to consistently generate operating margins in the 30%+ levels, but not in the last few years. Currently, adjusted operating profit for the HY to Mar25 was 20.7%.
The challenge in the HY performance was due to gross margins declining from 48.0% to 44.1%. Quite a steep drop, and while Product Volume sold increased by +16%! Increasing volume of product normally drives higher gross margin, as operational gearing takes place. So this was unusual to see. The company blames “sales mix”, as more product went to Value Added Resellers (VAR), which buy in bulk cheaply from Victrex. VAR increased as a share from 39.8% to 44.6%. The company says pricing (and by implication gross margins) for VAR are lower.
By doing a goal-seek in Excel, one possible scenario I can see is that they are selling to VARs at negative margins and taking a loss. That would explain the steep falling margins, while VAR share goes up, and the company claims that LfL pricing for other customer types are broadly similar YoY. In effect, have they been “dumping” product into the VAR market, but why?
This would make sense if the company was looking to clear out inventories. Indeed, Victrex last year identified that they had high inventories. It was £126m as of HY Mar24 (compared to total sales of £139m/HY!). This year, it is down to £114m. Still high, on £146m/HY of revenues. Ideally, it should be around £50m or lower, albeit management say they think a good level is £100m (but why?).
Maintaining such a high level of inventory is a luxury they can’t afford, especially as they have £40.7m of net debt and just under £60m of gross debt, and all that debt interest to pay.
So have they been distressed selling PEEK to VARs? That would be a troubling thought. And what if those VARs this year are fully stocked up, and can’t take anymore? Or they then further flood the market with PEEK products, competing directly with Victrex?
I’m no expert in this industry, but it seems like maybe there is much, much more competitive pressure now than before? The current Average Selling Price (ASP) of £72.3/kg isn’t that low by historic standard, as they achieved similar prices in FY22 (£72.1/kg). But back then, their margins were 51%, compared to 44% now. GBP to USD exchange rates were roughly similar now compared to then, so it isn’t an FX thing due to manufacturing in the UK. Obviously, input costs have gone up since FY22.
The company does mention that their new China factory, which is underutilised, is a drag on profits, so potentially it is having a very poor margin that is dragging down the gross margin average.
Talking about the China factory, they say they have encountered ramping-up issues, which means they will only achieve half or a quarter of the production forecast (50 tonnes instead of 100-200 tonnes…!). Worryingly, they do not explicitly reassure that they know exactly what the problems are, only that they have a panel of experts working on it. Sounds like there is a big risk that the ramp-up problems will linger longer than expected, and therefore be a continual drag on profitability and revenue growth.
In conclusion…
So putting it all together, I have a very muddled picture of whether Victrex can ever recover the profitability it once had. Whether they are facing huge competitive pressures and therefore margin pressure. Whether their China factory will be a cost sinkhole for longer. Even their “growth” initiatives - what they call Mega Programmes which are NPD collaborations with OEMs, have been going on for a few years now, and only delivered £10m/revenue in the latest HY out of £140m+. So not very meaningful.
There’s not a clean story here, and I’m not sure management are doing enough to tell a compelling story, and heading off all the concerns. It seems most other investors agree too, as the share price is down -38% in the past year, and -55% in the last 3 years.
Even the CEO might be agreeing that the outlook looks bleak or cloudy - he did consistent buying between Dec23 to Jun24 between 1250p-1400p, a total of ~£130k splashed out… but then nothing since then. Despite the SP continuously dropping to 780p!
Beeks Financial Services #BKS $BKS.L
Beeks is a really interesting company. They’re in the cloud computing business, but not up against the likes of AWS, Google Cloud, or Azure. That would be a tough market. Beeks has carved itself a very interesting niche, playing in the high frequency algorithmic trading space. They started off by allowing any investor (large or small) to run trading scripts on Beek’s hardware, which have been strategically installed to be super close to Financial Exchanges, so as to offer the latest trade latency and a speed advantage. If high frequency trading was expressed in Formula One terms, Beeks has the fastest car, and they’re willing to rent it out to anyone. This side of their business is called Proximity Cloud. Their clients are some of the largest Tier 1 financial services institutions.
In recent years, they’ve decided to open up a new revenue stream, called Exchange Cloud. Not content to be just “close” to the Exchanges, they are now partnering with Exchanges to offer an “official” cloud computing/trading solution. They have signed up many exchanges globally, including NASDAQ, the Johannesburg Stock Exchange (JSE), the Australian Stock Exchange (ASX), and even a crypto exchange recently called Kraken.
Revenue has more than tripled from 2021 to 2025, albeit they are still a minnow, only expecting to do £37m of revenues in FY Jun25. Profits have been more elusive; but maybe we can forgive the company for a lack of profits when they are chasing such high growth and NPD. In addition, it is a capex heavy business; Beeks has to buy and install its own physical hardware, before it starts to rent out its cloud platform and charge a SaaS like fee.
Investors have been happy to pay for this high growth, with PEs consistently much higher than 30+.
Is this now the inflection point where Beeks starts to generate meaningful profits and free cashflow? Management still have ambition to sign up more Exchange Cloud, Proximity Cloud clients and keep that top-line growing healthily.
In addition, they have recently decided to change their contract model for Exchange Cloud. Before, they were happy to do a “licence-like” approach, and take a big fixed payment from the Exchange. They have now transitioned to a revenue-share model. This should be higher revenues over a lifetime, but it does mean very little revenue in the first few years. As Beeks is creating a completely new service with the Exchange partner, it’ll take time to recruit new financial services clients onto that service. This could exacerbate their cashflow problems, as they invest the same capex upfront but it takes longer for the revenue to come in for payback. At the HY to Dec24, Beeks had net cash of £6.6m. A 20% revenue growth from their current levels is an extra +£7.5m a year, and if you work backwards to the “capex” needed to drive it, and say it has a 2 year payback period, then you can see they might quickly run out of cash. Luckily, operational cashflow is at like £5.6m/HY, so looks like they could just about fund an expansion programme that delivers a 10-20% revenue growth rate. They also have a modest £3.5m RCF that they could use.
When companies transition from an fixed fee to a revenue-share type model, there is a period of them when the revenue growth stalls, or even contracts for a while. Its hard to see if this will happen at Beeks, but the Recurring Revenue growth has slowed down, with ACMRR only at £29.2m at Feb25, compared to £28.5m at Dec24 and £28.0m at Jun24. On a headline level, H2 (to Jun25) revenue growth will be minimal given ACMRR has barely grown in the year, and all the new contracts signed and launch in H2 are mainly rev share models. Will this cause some casual investors to lose interest, especially the impatient ones? We’ve seen a bit of that already, with the shares drifting downwards from 280p in Mar25 to 200p in Jun25.
How to value? I’ve run a few different scenarios, and think 160-200p would be a good price to pay. So its not too far off that at the moment.
In addition, the Founder/CEO, Gordon McArthur, is also sending a signal that the share price now might be undervalued. He’s been a regular seller since 2019, decreasing his stake, which now is just over 30%. I don’t take his sells as a bearish signal, given their regularity. However, he does choose the amount to offload, and looking at his pattern, seems like he thinks the current price around 214p is not worth selling too much:
May25: Sold £556k of shares at 214p
Nov24: Sold £780k of shares at 260p
Mar24: Sold £3.6m of shares at 165p (he timed this one wrongly!)
Apr22: Sold £2.8m of shares at 165p (this he got the timing right)
Jun21: Sold £890k of shares at 119p
Apr21: Sold £500k of shares at 115p (he had tried to place £2m of shares in this secondary placing though!)
Aug19: Sold £150k of shares at 83p
Given that the latest sells have been much less volume than past ones, potentially might signal that Gordon thinks the shares are a bit undervalued at the moment.
In conclusion…
I think Beeks have built themselves a very nice product that has moat like qualities. There’s plenty of growth runway in new Exchanges, new Financial Services clients to sign up. However, the big question I guess is profitability. Its never had a reporting period where they’ve demonstrated high profitability of either Exchange Cloud or Proximity Cloud, so one has to take a leap of faith here. But at between 160p and 200p, I think it doesn’t take much extra top-line growth or margin growth to make the numbers work, so I’d be very tempted to buy there.
Topps Tiles #TPT $TPT.L
Revenues and profits went backwards in the FY to Sep24, so the latest H1 results to Mar25 were pretty pleasing, showing a return to growth of +4.1% in revenues excluding the CTD acquisition.
I last wrote about Topps Tiles in June 2024, where I mentioned:
Their new Mission 365 strategy could result in EPS of 11p+ a year. That’s double the highest EPS they have achieved in the last 5 years.
Broker forecasts of 3p EPS for FY Sep24 looked high, and I was expecting 2.3-2.5p. True enough, there was a disappointment, and it actually came in there, at 2.4p adj EPS.
I thought the price then (40p) was too high and I had set a price of “much less than 30p” to buy. It did briefly get to 29-30p since then, but never went low enough for me to be interested to buy.
Looking at the latest HY results to Mar25:
The YoY revenue growth seems to be nicely accelerating. From +3.3% in Q1 to +4.4% in Q2 to +9.5% in the first seven weeks of Q3. This is pretty stunning, but confirmed by industry sources like the Barclays Spend Data that we have seen a rapid improvement in sales volumes in Home Improvement over the first few months of 2025. Can this growth continue?
I note that Q2 and Q3 last year were exceptionally bad trading periods for Topps Tiles, hence the comparisons were always going to be soft.
For me, there are some negatives for me looking forwards:
Big jump in Receivables YoY of +21%. Quite a bit higher than the sales growth they have had. No commentary as to why.
NI and Wage increases in April are going to add £2m extra costs to H2. This is a big pressure when Operating Profit was only ~£5m in H1.
CTD will continue to be a profit drag into Q4. It lost £1m in H1, so probably will lose another £700k-£1m in H2 as the restructuring and integration work takes place.
Despite the accelerating growth in the Outlook and the upbeat results, the consensus broker forecast went slightly lower, which was interesting. Now at 3.5p EPS, c£9.2m PBT, for the FY Sep25. This seems ambitious, as H1 only did £3.2m adj PBT (excluding CTD). Could do they another £6m PBT in H2? Seems very ambitious, as they won’t be able to adjust out CTD losses then, and also the £2m hit from NI and Wages. Sure, the revenue growth will help, but I don’t think they will get to £6m PBT, so there is likely to be a profit warning coming up IMO.
Long-term wise, I have crunched some different scenarios. Within the next 2 years, they could quite conservatively get to £320m revenues (their Mission365 strategy has a goal of £365m). From there, taking some conservative assumptions on margins, I think a 7.6p EPS is quite achievable within the next 2-3 years. This is much higher than the 3.5p broker forecast for FY25. So if brokers start to put out EPS like my estimate for FY26, FY27 then the shares could nicely double or more.
In Conclusion…
So I remain attracted to Topps, but think there might be further SP weakness in the next few months as they disappoint with their H2 results. For me, a 30-35p entry point is what I’m aiming for.
Thanks Boon. There's no hiding place for a share when under the Boon microscope!