It is with a heavy heart that I decided to sell my shares in BATS (Brit Amer Tobacco) today. It was my biggest holding by a large margin. BATS has been a fantastic little performer for me, both capital-wise and in terms of big fat juicy growing dividends. Who’d have thought that from a boring fag company?
Any time I think about selling BATS, I always have to check with myself to see if I’m about to do anything really stupid. It’s very hard to give up such a long-term solid performer. BATS has exceeded its decade-long record of PERs, near enough. Other defensives seem to be at nose-bleed valuations – Unilever, and SABMiller, to name but two from Motley Fool’s recent articles. I can’t imagine there’s too much upside left in most large-cap defensives.
There’s some exceptions – supermarkets for instance. Maybe a few other sectors are interesting.
I used some of my proceeds to follow the directors and buy into BRAM (Brammer), the distributer of industrial maintenance, repair and overhaul products and services, including bearings, mechanical power transmission, pneumatics, hydraulics, tools and health and safety equipment. Its yield is slightly higher than BATS, but in terms of PER, it is much cheaper, at around 10. Interest cover is a very comfortable 11X, return on equity over the last decade has been about 20%. Dividends have risen from 2.99p a decade ago to 8.40p – a rate of about 12% increase per annum. Not bad at all! Dividends have never been reduced during that period. Interims issued on 31-Jul20122 were encouraging. They reported record revenues, and
Brammer is the leading European supplier of technical components and related services to the MRO market and with only small market share there is opportunity for considerable further growth … the group is well positioned for continued good progress.
There seems to be a much bigger upside to BRAM than with BATS. We shall we. Here’s to hoping I haven’t done anything stupid!