For the past two months Australian investors have experienced what might be called share market shock, as they check their portfolios.  The up and down volatility may very well be driving a few to crawl into a corner and assume the fetal position.  

Those still standing upright wonder what to do and look with skepticism at analyst recommendations for shares to buy.  Buy??  Who in their right mind would want to buy anything in this market?

You have probably read time and again that fortunes are made in the midst of deadly market conditions.  For the skeptical investor, a company that was highlighted in last weeks 18 Share Tips column on TheBull serves as a real example.  The company is Campbell Brothers Limited (CPB), a global leader in analytical services for the mining, environmental and industrial sectors. In the year to March, revenue rose 34 per cent to $1.1 billion, with earnings per share up 57 per cent.

According to Peter Russell of Russell Research Campbell Brothers’s debt is low and complementary acquisitions are contributing to its exemplary track record of growth, which in the past decade has been 32 per cent a year.

Campbell Brothers Limited (CPB) is a business to business company.  They have three revenue generating business divisions – ALS Group, Campbell Chemicals, and Rewards Distribution.  They are international in scope with operations in Australia, Asia, the Pacific region, North and South America, Europe, and Africa.  

The ALS Group generates about 95% of the company’s revenue through its laboratory and testing offerings to the following markets:  Metallurgical Mining, Coal, Minerals, Environmental, Tribiology (Used Oil), Pharmaceutical, Microbiology, Electronics, Air Quality, and Occupational Health.

Campbell Chemicals offers consumable commercial and industrial chemicals across a variety of industries.  They operate through two subsidiary companies, Deltrex Chemicals and Panamex Pacific.  

Rewards Distribution sells non food consumables to the hospitality, health & aged care, education, catering & contract cleaning industries.

The range of commercial services they offer and the industries they serve should make them able to withstand serious economic downturns.  In the toughest of times businesses still need consumable items and laboratory testing and analysis is critical to ongoing operations in most industries.  

What’s more, not all businesses and regions of the world are impacted in the same way, and Campbell is well represented in a host of different industries across six continents.  We have recent history to shed some light on Campbell’s ability to withstand hard times.   First, let us look at share price movement over the past five years.

Campbell Brothers Limited CPB – 5 Year Share Price Movement 

At the onset of the Great Financial Crisis (GFC), Campbell Brothers was trading around $35 per share.  Less than three years later CPB was trading around $50 per share.  Its 52 week high for 2011 is $57.  

While the share price was not immune to the share market crash, investors with the conviction to buy as the share price dropped have been handsomely rewarded.  Every investor’s dream is to buy right at the bottom, which was around $8.  Those fortunate few could have realised a 600% gain had they sold at the high.  However, it is not a perfect world and few buy at the lowest low and sell at the highest high.  But anyone who bought in at $25, or $20, or $15 still achieved huge gains.

The kind of share price appreciation CPB has experienced stems from either solid fundamental performance or the expectation of solid performance in the future.  For established growth companies like CPB, both conditions apply.  So let us look at how well CPB has performance on some key measures over the last five years.

CPB – Five Year Performance

Since Campbell’s reporting period is in March, the effects of the GFC should be evident in both the 2009 and the 2010 results.  The biggest impact came in Fiscal Year 2010, with decreases in revenue, net profit after tax, and both cash flow and earnings per share.  However, note they still managed to increase their dividend slightly.  In Fiscal Year 2011, performance surged.  To put those numbers into better perspective, consider the following:

•    Revenue increased 34.3%
•    NPAT increased 75.6%
•    Cash flow per share increased 42.9%
•    EPS increased 57.4%
•    Dividends per share increased 40%.

Of course, these numbers came before the threat of a new global recession and even the possibility of a GFC2 came into play.  Some analysts point out that although CPB weathered the past downturns, their current businesses are approaching market saturation, diminishing their growth prospects even if these calamitous events do not occur.

For that, CPB has an answer that goes beyond increased market penetration in existing operations.  Currently, they have yet to establish a dominant presence in the growing inspection and certification fields.  They already have a history of solid acquisitions and that is their strategy for expanding their market.  Their long term debt stands at $152.3 million, down from FY 2010 long term debt of $196.6 million.  They also reduced their Debt/Equity Ratio (Gross Gearing) from 32.5% in 2010 to 24.1%.

If that is not enough evidence, consider the company’s latest earnings guidance:

•    Laboratory operator Campbell Brothers Ltd has increased its first half profit forecasts due to better than expected trading.

•    The company now expects an underlying net profit of $100 million for the six months to September 30, up from its previously advised figure of between $90 million and $95 million.

•    If these expectations are met, first half net profit will be up by 51 per cent on the previous corresponding period.

This release came on 27 September 2011, right in the midst of one of the worst market weeks in memory.  Despite the threat of impending doom, CPB says it will not slow them down.

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