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Companies with defensive appeal tend to have strong businesses whose long-term prospects are not unduly affected by the immediate vagaries of the financial cycle or market fashion. If consolidation is under way in their sectors, to create stronger players with opportunities for improved margins, so much the better.

One sector offering defensive possibilities is health care, where AIM-quoted dentistry group Oasis Healthcare recently attracted an £82 million agreed bid from Duke Street Capital. A larger player, fully listed Southern Cross Healthcare, Britain’s leading care home provider, has been growing revenues at 17 per cent a year and eliminating past losses caused by financing costs.

With the care home market benefiting from an ageing population, and regulation and rising property prices causing smaller operators to exit, Southern is seen as a prime consolidator, good at buying businesses and selling assets.

Similarly well placed in a non-cyclical business is Dignity, Britain’s largest provider of funeral services. The fully listed group, which lifted first-quarter profits 20 per cent to £16.6 million, has 12 per cent of a consolidating market. Analysts suggest this could reach 20 per cent within ten years. That will coincide with the onset of the heaviest period of mortality for the post-war ‘baby boom’ generation.

Safety in equity release
Equity release is an established market with sound long-term prospects. That it is now regulated means there is support for AIM-quoted Sovereign Reversions, which provides finance to retired homeowners and is the only listed company in the sector. Acquisitive Sovereign made £7.21 million in pre-tax profits last year.

Home shopping is another area worth considering. Operating in that sector is Findel, which increased profits more than ten per cent to £56 million last year on £555.4 million turnover, before warehouse reorganisation costs, but losses on disposals and other items cut the pre-tax figure back to £17.5 million.

The company, which also handles recruitment and health care, recently said group sales had risen 35 per cent in the first quarter of this year. Chief executive Patrick Jolly said home shopping sales were 68 per cent up, with the internet share firmly on target.

In it for the long haul
The march of business software has been a long-term trend, which many organisations feel they must embrace whatever else is happening. Thus, ‘business transformation consultant’ Axon Group is continuing to make strides as a leader in the field of integrating software produced by German giant SAP into the systems of large SAP users.

The company, which is acquisitive and has been growing in the US, increased pre-tax profits 81 per cent to £22 million last year and has indicated that interim profits will nearly double to £15 million this year. Significant contract wins in the US and expansion into South East Asia add further promise.

Hungry for profits
Basic food is classically a defensive sector. Recent Full List arrival Hilton Food Group, a specialist meat packer, supplies Tesco and other leading retailers in the UK and continental Europe from facilities in Britain, Ireland, Sweden and Poland. It lifted pre-tax profits 14 per cent last year to £15.5 million and has been expanding its facilities. Chief executive Robert Watson says he is ‘pleased with progress’ in the first half of this year.

Fuller, Smith & Turner, the owner of pubs and hotels group Fuller’s Inns, pushed up operating profits 31 per cent to £29.4 million in the year to March on turnover 23 per cent ahead at £178.2 million. The company has reported a satisfactory start to the current year and said the weather had more of an impact than the smoking ban.

Dairy foods group Dairy Crest also has its followers. Pre-tax profits rose 24 per cent to £80.5 million last year and margins are improving in some divisions.

Riding a magic carpet
Headlam Group, Europe’s leading carpet wholesaler and distributor, boasted cash of £42 million at the end of last year against overdrafts and finance leases of just £1.3 million – a decidedly defensive attribute. Increasing pre-tax profits 6.7 per cent to £43.5 million on sales up 4.8 per cent to £510 million, the company is acquisitive and sells chiefly to carpet fitters and independent retailers, which are seen as more stable markets than the big groups.

Also worth pondering is acquisitive veterinary practice CVS, which broker Panmure Gordon is bringing to AIM this month with a £100 million price tag. Simon Innes, the successful former boss of spectacles retailer Vision Express, heads CVS, backed by private equity group Sovereign Capital, and hopes to be a consolidator in a fragmented market where prices and margins are rising and traditional partnerships are likely to give way to corporate structures.