Cape Wrath Capital is a specialist UK fund manager focused on value stocks. We invest in 20-25 stocks ranging from small to large caps, identifying situations where a stock’s story could change and providing a catalyst to revalue stocks at fair value.
Cape Wrath’s Most Profitable Stocks
Somero Enterprises (Objective: SOM) is a market leader in the manufacture and service of laser leveling machines, which enable specialist contractors to lay very flat concrete floors at low cost.
The group’s markets include e-commerce warehouses, high-rise buildings and, in North America, road laying and surfacing. Operating margins of around 34%, return on invested capital (a key indicator of profitability) of over 65% and strong cash generation support a prospective dividend yield of 9%.
The company reports in US dollars, with approximately 70% of sales in North America. A recent update cited clients facing “heavy workloads and prolonged project delays,” but Somero’s markets are cyclical.
Trading on a forward price-to-earnings (p/e) ratio of 7.7, the stocks are priced for a severe US recession. But with plenty of cash on the balance sheet and an experienced management team, Somero looks well positioned to weather the storm.
Ultimately, we believe a company of this quality could trade for at least double its current price-earnings ratio. With stocks at a third of recent highs, this could be an ideal entry point.
EnQuest (LSE: ENQ) is an oil company focused on mature fields in the North Sea and Malaysia. A long period of low global oil prices and the growing emphasis on environmental, social and governance (ESG) issues has limited capital for new oil and gas projects, significantly affecting the market’s ability to respond. any potential increase in demand.
Despite the impact of the recently announced UK windfall tax on EnQuest’s earnings, the shares are trading at a forward P/E ratio of 1.6 and the company could generate cash flow this year. free cash of approximately 70% of its current market capitalization.
The prevailing narrative seems to be that EnQuest has too much debt, but based on its current level of cash generation, it could be debt free in two years. The next five years of free cash flow alone could justify a valuation at twice the current share price.
Gulf Maritime Services (LSE: GMS) owns and operates a fleet of self-propelled and self-erecting support vessels, which are used to service wind farms and offshore oil rigs.
In 2014, with oil trading at over $100 a barrel, GMS was able to lease its flagship ships for up to $100,000 a day. By 2021, that amount had dropped to $30,000 per day. Today, many fabrication yards serving the oil and gas industry are in financial difficulty and the capital available in the sector is limited. There is also a minimum period of two years for new vessels.
At the same time, the demand for vessels is steadily increasing, driving up utilization and daily rates. GMS trades at less than half the book value of its vessels.