Incremental returns

Maynard made this comment in the discussion about Softcat:

I wondered if anyone had tried searching for companies that have made high returns on incremental capital as a screen and whether that might throw up some unusual names (preferably at PERs of 15-16 rather than 32x :grinning_face_with_smiling_eyes:).
Cheers
Steve

Hi SteveA,

Thanks for the post and welcome to the forum.

Can be done (sort of) through SharePad.

I created a filter that sought GBP-denominated companies that exhibited 5-year sales and earnings growth of at least 15%:

I then added columns to show the absolute change to earnings and NAV over the five years, as well as the forecast P/E.

I then downloaded the results into a spreadsheet to calculate the incremental return on equity (i.e. the 5-year change to earnings over the 5-year change to NAV).

From the 255 SharePad matches, I removed all those shares with incremental returns of between 0% and less than 15%. That left 137 shares listed below. Note the companies with negative incremental returns have improved earnings despite NAV decreasing, which is quite a feat normally.

As well as the usual caveats about relying on third-party data, the NAV changes (and therefore the incremental returns) may have been influenced by extra borrowings. I have not checked. Might be some names in there that are of interest.

Maynard

TIDM Name 5yr earnings change (£m) 5yr NAV change (£m) 5yr turnover change(%) 5yr earnings change(%) fc PE Inc ROE
STJ St James’s Place PLC 84.8 17.6 262.3 41.0 21.7 481.8%
BOTB Best of the Best PLC 2.7 0.7 111.5 318.8 26.8 363.4%
CTO TClarke PLC 7.6 4.0 50.5 1,900.0 10.6 190.0%
AUG Augean PLC 12.3 6.6 94.8 258.0 14.0 185.9%
JDG Judges Scientific PLC 8.9 5.0 116.1 180.7 37.6 178.3%
JIM Jarvis Securities PLC 1.4 1.0 40.4 55.6 21.0 141.7%
ECK Eckoh PLC 2.4 2.1 104.6 339.2 36.8 114.8%
SLP Sylvania Platinum Ltd 46.2 42.4 49.4 2,694.9 109.0%
SCT Softcat PLC 43.6 44.9 96.5 136.0 36.1 97.0%
BEG Begbies Traynor Group PLC 4.4 4.6 36.2 160.1 18.5 96.8%
PLUS Plus500 Ltd 403.5 438.0 54.9 417.4 8.4 92.1%
BVXP Bioventix PLC 4.6 5.9 162.8 181.7 78.3%
AGY Allergy Therapeutics PLC 7.0 9.3 75.7 6,435.2 74.6%
GAW Games Workshop Group PLC 59.1 82.2 107.8 483.7 28.0 71.9%
SAG Science Group PLC 3.0 4.2 102.1 73.5 16.8 71.7%
TEP Telecom plus PLC 16.0 26.1 21.9 49.7 20.2 61.6%
K3C K3 Capital Group PLC 4.5 7.7 362.5 584.4 22.7 58.2%
MBO MobilityOne Ltd 0.4 0.7 145.7 161.1 56.8%
BME B&M European Value Retail SA 84.1 154.2 142.2 81.7 13.6 54.5%
ADT AdEPT Technology Group PLC 3.2 6.1 146.0 91.9 10.8 52.7%
CLIG City of London Investment Group PLC 2.8 5.3 31.9 42.6 10.7 52.2%
AUTO Auto Trader Group PLC 163.9 317.7 49.4 397.8 45.7 51.6%
POLY Polymetal International PLC 781.0 1,515.0 32.6 268.4 7.9 51.6%
MAB1 Mortgage Advice Bureau Holdings Ltd 9.1 18.0 207.7 141.6 42.6 50.5%
GRG Greggs PLC 47.5 100.1 35.0 107.4 47.5%
FOUR 4imprint Group PLC 23.2 48.9 121.8 115.1 203.6 47.4%
CCC Computacenter PLC 44.9 107.2 41.7 73.8 18.0 41.9%
CHH Churchill China PLC 5.5 13.4 33.2 161.9 194.8 41.3%
BISI Bisichi PLC 1.1 2.6 42.3 92.3 41.2%
ADM Admiral Group PLC 203.0 497.0 53.8 67.7 20.7 40.8%
POLR Polar Capital Holdings PLC 16.3 40.8 93.4 70.1 11.9 40.0%
HAT H&T Group PLC 12.4 31.7 44.1 292.2 10.3 39.2%
SFR Severfield PLC 16.8 43.1 18.9 244.8 12.7 39.0%
LSEG London Stock Exchange Group PLC 375.3 967.1 142.3 104.6 26.5 38.8%
ERGO Ergomed PLC 8.3 21.5 257.2 817.2 48.1 38.5%
HL. Hargreaves Lansdown PLC 122.9 321.7 34.1 78.4 25.5 38.2%
ARW Arrow Global Group PLC 28.3 75.5 282.1 95.8 37.5%
CRW Craneware PLC 7.4 20.8 67.7 72.9 45.7 35.6%
JET2 Jet2 PLC 167.9 476.9 164.6 533.3 35.2%
NEX National Express Group PLC 88.2 250.9 29.7 91.3 35.2%
MWE MTI Wireless Edge Ltd 2.2 6.2 179.2 177.0 28.5 35.1%
IGG IG Group Holdings PLC 116.9 344.5 19.2 88.6 11.4 33.9%
TUNE Focusrite PLC 13.0 38.4 106.7 210.8 28.5 33.8%
MSLH Marshalls PLC 38.0 114.6 59.7 179.2 78.6 33.1%
CHRT Cohort PLC 6.9 20.9 69.4 84.4 18.6 33.0%
CMCX CMC Markets PLC 46.0 140.6 20.7 112.6 7.6 32.8%
DATA GlobalData PLC 36.5 112.5 268.6 2,147.1 41.3 32.4%
ECM Electrocomponents PLC 110.1 351.6 48.0 189.8 33.0 31.3%
AV. Aviva PLC 756.4 2,429.0 58.0 62.8 7.0 31.1%
AHT Ashtead Group PLC 569.4 1,860.7 180.5 248.5 28.0 30.6%
KNOS Kainos Group Ltd 10.7 35.4 261.0 109.8 36.1 30.3%
FEVR Fevertree Drinks PLC 51.9 172.8 1,053.7 696.1 69.0 30.0%
THS Tharisa PLC 40.3 134.7 42.4 858.6 4.7 29.9%
JD. JD Sports Fashion PLC 264.9 922.7 287.9 387.0 27.1 28.7%
HSV Homeserve PLC 75.9 267.2 76.6 122.0 26.4 28.4%
GSK GlaxoSmithKline PLC 2,680.5 9,473.0 46.7 163.7 12.5 28.3%
UPGS UP Global Sourcing Holdings PLC 2.9 10.4 207.1 82.0 14.2 28.1%
BNZL Bunzl PLC 252.4 902.8 51.5 84.7 16.5 28.0%
CLIN Clinigen Group PLC 66.6 241.0 260.8 326.5 11.3 27.6%
CRL Creightons PLC 2.7 9.8 127.5 563.4 27.5%
ASY Andrews Sykes Group PLC 5.7 21.4 28.6 61.3 26.7%
NUM Numis Corporation PLC 11.0 42.1 20.2 51.0 26.1%
XPP XP Power Ltd 19.5 75.5 97.7 99.0 27.4 25.8%
NFC Next Fifteen Communications Group PLC 19.4 75.3 168.5 159.0 15.7 25.8%
HILS Hill & Smith Holdings PLC 31.3 122.0 52.8 125.5 18.6 25.7%
WIZZ Wizz Air Holding PLC 198.6 774.8 129.2 135.8 25.6%
YOU YouGov PLC 12.3 48.5 102.6 173.7 54.0 25.3%
ELCO Elecosoft Ltd 2.8 11.2 36.2 547.6 23.5 25.1%
BOO Boohoo Group PLC 60.6 244.3 680.5 647.5 36.8 24.8%
KAKU Kakuzi Ltd 553.0 2,233.6 127.7 347.2 24.8%
GAMA Gamma Communications PLC 25.0 101.3 91.6 178.6 31.0 24.7%
BILN Billington Holdings PLC 3.3 13.8 103.5 228.5 24.2%
FRES Fresnillo PLC 273.3 1,134.9 49.9 534.7 15.9 24.1%
TPFG Property Franchise Group (The) PLC 2.6 11.0 171.4 158.2 12.8 23.3%
SOM Somero Enterprises Inc 5.8 25.3 50.7 44.8 14.6 22.9%
D4T4 D4t4 Solutions PLC 4.0 17.4 143.8 747.6 39.9 22.9%
INSE Inspired Energy PLC 9.4 41.6 329.1 255.1 23.6 22.7%
ULS ULS Technology PLC 1.4 6.0 83.8 64.1 47.2 22.4%
NWF NWF Group PLC 3.6 16.3 24.8 56.3 12.7 22.1%
PLP Polypipe Group PLC 26.7 123.7 44.0 82.9 43.1 21.6%
TSTL Tristel PLC 3.0 14.3 94.3 135.6 51.6 21.0%
RB. Reckitt Benckiser Group PLC 463.0 2,211.0 45.4 24.7 20.2 20.9%
LIO Liontrust Asset Management PLC 13.5 64.8 242.8 172.8 18.4 20.8%
FUTR Future PLC 72.8 349.9 235.6 72,800.0 18.9 20.8%
FDM FDM Group Holdings PLC 8.2 39.6 120.3 36.4 33.5 20.8%
DOTD Dotdigital Group PLC 6.7 32.3 162.3 141.4 46.5 20.8%
CRPR Cropper (James) PLC 3.2 15.5 19.6 171.2 203.7 20.7%
INDI Indus Gas Ltd 32.8 161.3 117.7 202.0 13.3 20.3%
WJG Watkin Jones PLC 11.0 54.8 64.9 41.5 13.7 20.1%
IDEA Ideagen PLC 9.2 45.7 420.3 303.8 48.0 20.1%
ARC Arcontech Group PLC 0.8 3.9 43.4 220.4 20.9 19.9%
RNWH Renew Holdings PLC 18.8 95.5 29.2 142.5 12.3 19.7%
LTG Learning Technologies Group PLC 31.2 159.6 1,142.4 2,390.6 36.2 19.5%
NSH Norish PLC 1.3 6.9 61.3 207.8 23.9 19.4%
SDI SDI Group PLC 3.2 16.3 147.6 1,033.4 32.7 19.4%
SVS Savills PLC 33.5 173.0 94.7 45.8 24.9 19.4%
FDP First Derivatives PLC 12.5 64.8 210.9 143.4 42.3 19.3%
TIDE Crimson Tide PLC 0.3 1.4 89.1 319.0 33.0 19.2%
BLV Belvoir Group PLC 3.3 17.3 130.0 244.1 11.0 19.0%
NXR Norcros PLC 9.8 51.7 51.3 75.4 11.3 19.0%
HSM Heath (Samuel) & Sons PLC 0.7 3.6 26.5 171.3 18.9%
FDEV Frontier Developments PLC 14.2 75.8 839.8 865.0 54.9 18.8%
INS Instem Life Science Systems PLC 2.1 11.4 99.9 211.0 32.4 18.7%
JSG Johnson Service Group PLC 23.6 127.5 65.9 152.3 18.5%
CNC Concurrent Technologies PLC 1.4 7.6 40.2 83.3 16.5 18.1%
BILB Bilby PLC 1.9 10.6 583.5 134.4 18.0%
AFHP AFH Financial Group PLC 13.4 75.0 394.4 1,144.7 15.2 17.9%
GTLY Gateley (Holdings) PLC 6.1 34.5 89.5 74.1 17.3 17.8%
HLMA Halma PLC 99.7 588.7 79.0 84.5 42.5 16.9%
TMG The Mission Group PLC 3.7 21.6 28.9 85.1 200.0 16.9%
MTW Mattioli Woods PLC 8.8 52.2 95.9 216.2 16.5 16.8%
MBH Michelmersh Brick Holdings PLC 4.9 29.4 78.7 216.4 23.0 16.6%
ROL Rotala PLC 1.8 11.0 17.1 102.7 16.5%
PSN Persimmon PLC 173.3 1,062.6 41.8 32.7 12.2 16.3%
CBP Curtis Banks Group PLC 8.4 51.6 417.6 340.6 14.2 16.3%
MAI Maintel Holdings PLC 2.5 15.8 338.4 50.6 9.4 16.0%
AIRC Air China Ltd 6,170.9 38,870.0 40.1 208,900.4 15.9%
UDG UDG Healthcare PLC 47.0 298.3 33.9 64.3 19.7 15.8%
PHNX Phoenix Group Holdings 799.0 5,097.0 446.5 397.5 9.5 15.7%
DSCV Discoverie Group PLC 16.8 107.8 107.4 178.7 28.3 15.6%
RTO Rentokil Initial PLC 139.8 917.4 55.9 96.3 29.0 15.2%
KWS Keywords Studios PLC 28.8 190.9 1,449.6 866.3 47.7 15.1%
STP Stenprop Ltd 11.2 74.4 111,504.3 132.2 15.1%
HIK Hikma Pharmaceuticals PLC 120.0 798.0 48.2 41.7 16.8 15.0%
TYMN Tyman PLC 20.6 136.9 74.9 63.3 13.2 15.0%
GPOR Great Portland Estates PLC 11.9 (187.8) 30.8 26.4 41.0 (6.3%)
ENQ EnQuest PLC 76.9 (787.1) 35.9 56.0 (9.8%)
PRP Prime People PLC 0.5 (4.7) 70.8 45.2 (10.8%)
DRX Drax Group PLC 50.4 (263.0) 67.7 109.6 14.8 (19.2%)
DOM Domino’s Pizza Group PLC 25.0 (106.5) 87.0 42.2 19.0 (23.5%)
DGE Diageo PLC 341.0 (999.0) 25.4 15.3 26.3 (34.1%)
RWI Renewi PLC 13.5 (27.1) 132.3 49.6 18.9 (49.7%)
IMB Imperial Brands PLC 377.0 (456.0) 19.4 18.6 5.6 (82.7%)
EMIS EMIS Group PLC 7.5 (6.3) 41.8 30.3 22.8 (120.1%)
SPT Spirent Communications PLC 46.1 (32.0) 15.3 129.5 23.8 (144.1%)
MOTR Motorpoint Group PLC 7.8 (4.6) 123.8 105.4 19.9 (169.6%)
REL RELX PLC 268.0 (45.0) 36.4 21.0 20.0 (595.6%)
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Thanks for the fast turnaround Maynard, there seem to be alot of good names on the list in terms of past performance, which isn’t too surprising since the numerator in the selection metric is earnings growth over the last five years. But assuming the list has many of the same names from last year, you can see a lot that have done well even as recently as the last 12Ms. I own quite a few names on the list already (though it is a long list…) such as JDG, JIM, PLUS/IGG/CMC, SAG, SOM, CRL,SDI. You might find JIM, CRL and SAG interesting if you haven’t looked at them before, all have founders with lots of skin in the game. Do you see any on the list that peek your interest given your comment that Softcat could be seen as potentially interesting on this basis? Best, Steve

I own four on the list and covered many more, including JIM, for SharePad. JIM actually did not look too bad and I was interested, but the shares started racing away after I submitted that article for publication and now look less appealing valuation wise. I am vaguely aware of the stories attached to most of the shares on the list, but can’t say I am immediately drawn to any.

Softcat was more interesting on a P/E of 15-16 (in hindsight), but as with all the highly rated stocks on the list, a lot depends on those appealing incremental returns being sustained. Mind you, overpaying for quality is not the worst sin in the stock market. When constructing the list I did look at the names and thought about my most recent investment, System1, where the market cap was c20% represented by cash and the P/E may be 8x. Yes, SYS1’s track record is not perfect, but the upside potential seems more obvious should things go right there.

Maynard