Chris St John, Portfolio Manager, AXA Investment Managers
Previously, we have addressed the characteristics that we look for when investing in growth stocks. In our view, well-capitalised companies that can grow profits, cash flows and dividends offer the best potential for equity investors.
Case Study
Dunelm is a retailer operating in the homeware space, delivering quality products across a broad price spectrum. It differentiates itself by offering a range of products from the value end to branded luxury. The company has shown over a prolonged period how to execute a business plan well, likewise the management team's knowledge of the business and its market is exceptional. For example, deputy chairman William Adderley even knows the sequence of the traffic lights outside the Ipswich outlet, which he argues influences the store's footfall.
The company has a very focused growth plan with clearly defined targets:
1. Like-for-like store sales growth
2. New store growth
3. Profit and sales growth in the home delivery channel.
The business has a strategy in place to roll out new stores in a controlled manner, the current number is 149, with plans to increase this to 200.
Dunelm have already been able to demonstrate their ability to translate growth into returns: the company's share price at IPO (19/10/2006) was 170p, ten years on (at 10/03/16) it was 912p. While total cash returned over this period, as dividends and special distributions has been 298p.
In fostering growth, the disciplined management team has struck an appropriate balance between rewarding equity holders and re-investing in the business/new opportunities.
With strong cash-generative growth and a management team that are committed to working for the equity holder, Dunelm has built a strong business. They are reaping the benefits of healthy expansion, and more importantly, delivering returns to equity holders.
About Chris
For more insights from Chris St John, visit our website.
Chris has been a portfolio manager at Framlington Equities since 2005 responsible for managing UK multi-cap and mid/small cap strategies. Prior to AXA IM, he was lead portfolio manager on institutional and retail FTSE Small Cap portfolios at ISIS (now F&C Asset Management). Chris started his career at PricewaterhouseCoopers in 1995, latterly specialising in valuing unlisted businesses, before moving to Friends, Ivory & Sime as trainee fund manager. Chris holds a degree in philosophy/psychology from Durham University and is also a Chartered Accountant.
The source of all the information in this case study is from the Dunelm Interim Report as at 2 January 2016. The stock selected for this article is for illustrative purposes only and should not be considered as advice or a recommendation. There is no guarantee that the stock will be held in AXA Investment Managers' portfolios or that it will perform in line with estimates.
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