With markets being buffeted by concerns over rising inflation and slowing growth – the dreaded ‘stagflation’ – and nothing but negative headlines it’s easy to be despondent about the outlook for UK businesses.

Yet, having scanned all the company announcements of the last couple of weeks, it’s clear there are still dozens of firms which are optimistic about trading and/or are raising their forecasts for 2022.

Most are business-to-business companies, although we did manage to find a handful of consumer-facing firms who are positive despite the cost-of-living crisis.

TRUSTED SUPPLIERS

The key to a good business, especially in times such as these, is being able to provide a key product or service which customers can’t do without and are willing to pay up for if necessary.

With house prices still rising at double-digit rates and demand for new homes defying expectations, suppliers of goods such as bricks, tiles, UPVC windows and door fittings have every reason to be positive about the future.

Similarly, with demand for warehouse space far outstripping supply, the whole logistics chain from firms which undertake groundworks and those which build the structures to those which deliver the goods are optimistic about their prospects.

The ultimate service business right now must be software, given the need for companies to keep up with their customers who increasingly expect to be able to interact online in the first instance.

Whether you run a gaming company, an auction house, a marketing business or even a theme park, your software must be of the highest quality to provide a seamless end-to-end experience for customers – and suppliers, where necessary.

MAGIC INGREDIENTS

The best industrial companies are those which make a particular product which no-one else can replicate and which is essential for the manufacture of other products.

In analyst-speak, that gives them a very wide economic ‘moat’, which is positive for profit margins and shareholders.

A classic case is specialty chemicals firm Croda (CRDA), which makes and supplies ‘magic ingredients’ for the consumer care sector, including beauty, home care, fragrances and flavours.

Without Croda’s products, makers of some of the best-known personal care and beauty brands would be unable to bring their own products to market, meaning it has tremendous pricing power. This means it can charge more for its products without causing a big drop-off in demand.

The firm doesn’t shout about it, but its latest trading update included the comment: ‘Significant input cost inflation has continued to be   successfully recovered.’

Croda is also a major player in the life sciences industry, from ingredients for life-saving drugs to higher-yielding crop additives and, more recently, the world of vaccines.

In 2020, Croda bought Avanti, one of the world leaders in the production of lipid nanoparticles (LNPs), which are essential for the delivery of mRNA vaccines including Covid treatments.

Avanti couldn’t make LNPs at scale, but Croda can, and in late 2020 it signed a supply deal with US pharma giant Pfizer (PFE:NYSE) which at the time was worth an estimated $125 million annually.

In the event, Croda’s ‘lipid systems platform’ booked $200 million of sales last year and this year it is investing tens of millions to expand production.

The market doesn’t seem to be giving Croda any credit for its ability to keep issuing good news, given how its share price is down by a third year-to-date. This is particularly odd when you consider its latest full-year numbers show growth in sales, profits, profit margins and dividends.

One explanation is that its shares were highly rated last year, and the market is no longer prepared to pay high multiples of earnings, hence we’ve seen a de-rating in its stock. The accompanying chart shows how the shares were trading on nearly 50 times earnings at the start of 2022, yet they’ve since come down to a PE of just under 27 which is nearly back to the levels generally seen between 2015 and early 2020.

The valuation is starting to more reasonable, and the company is issuing a lot of good news so investors need to decide what price they would be prepared to pay for a business with Croda’s credentials.

FEW CONSUMER WINNERS

Understandably, given the squeeze on household budgets from rocketing fuel and food prices, not many consumer-facing companies are talking up their prospects right now.

Food, drink and tobacco are among the few areas where consumption is likely to remain steady, with tobacco obviously benefitting from its addictiveness.

Imperial Brands (IMB) described its first-half performance as ‘strong’ and said it was on track to deliver on its full-year targets thanks to market share gains in its combustibles business and smaller losses in new products.

AIM bedfellows Artisanal Spirits (ART:AIM) and Fevertree Drinks (FEVR:AIM) both put out upbeat trading statements recently.

Artisanal Spirits said ‘positive momentum’ had continued since its previous update in March, and membership growth – a lead indicator for future sales growth – was ahead of management expectations.

Meanwhile, Fevertree said it was ‘not only confident in the long-term prospects for the brand, but also of delivering another good performance this year’.

A SLICE OF CAKE

Mr Kipling-maker Premier Foods (PFD) beat its own recently-raised forecasts, thanks to strong branded growth driving volume and value market share gains and promised ‘further good progress’ over the next 12 months.

In the media sector, magazine publisher Future (FUTR) has provided a rare ray of light, delivering a ‘modest’ upgrade to its full-year guidance thanks to an ‘excellent’ first six months of its financial year and ‘positive audience momentum’ in the second half.

Finally, in the travel and leisure sector, low-cost airline EasyJet (EZJ) predicted it would return to ‘near-2019 flying levels’ this summer and said it looked forward to ‘competing with its renewed strengths as a winner in the post-pandemic recovery’.

Also, pub group Young’s (YNGA:AIM) said it had made ‘a great start’ to the new financial year with sales performing ‘extremely well’ since March, and it hoped to break more records over the Jubilee weekend.

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