Companies: AVON    DPLM   

Unavoidably, in a market encountering some of its most volatile swings in living memory, a number of our past recommendations have suffered sharp share price falls. Many of these companies remain fundamentally sound long-term investments. Nevertheless, by adhering to our stop-loss policy, you will have protected yourself from unnecessary losses.

Avon Rubber, the international polymer engineering group known for supplying respirators to the military, was backed at 172.5p in November, yet the shares have recently plummeted through our 120.75p stop-loss level to 105p following disappointing growth in the protection and defence business.

In the long term, Avon Rubber still has a growth tale to tell, having honed its focus on its protection, defence and dairy activities. Remember that the company cheered investors with a swing from losses of £800,000 to profits of £2.2 million, on revenues of £66.7 million (2006: £63.1 million), for the year to September, while maintaining the dividend at 8.5p. Based on last year’s 7.9p continuing earnings figure, it trades on an undemanding historic multiple of 13.3 times and offers an eight per cent yield. If piqued by the share price performance, you may consider selling up, but we see Avon Rubber as a growth and income play for the long term. Hold.

Another with solid yield appeal is Diploma, the international specialised distribution business bossed by Bruce Thompson (recommended at 183.87p in late 2005) which, after climbing to 228p then breached the new 159.5p stop-loss and is now 164.25p.
A recent first quarter update to December reported positive trading in core business sectors, with its August acquisitions performing in line with expectations and helping sales to increase by more than 20 per cent.

Diploma’s life science businesses in Europe and Canada did well, sales in the seals division rose despite the American economy, while sales in the UK and Germany in the controls businesses were strong and solid respectively.

While currency movements are an issue for Diploma, the company remains financially robust, boasting net cash of £11 million as of 31 December and has a strong track record, having increased adjusted profit before tax by 14 per cent to more than £23 million the year to September, allowing for a 17 per cent rise in total dividends to 27p. Unfairly unloved and offering an emphatic yield, we would urge investors to hold for the long term.