Can Walker Greenback plc Beat Aviva plc In 2016?

One observable investment theme is the apparent proliferation of the rich.

It seems to me that those with lots of disposable income have a tendency to spend a fair bit on luxurious items for their homes. The rich could also benefit from a degree of insulation from the fiercest effects of economic downturns, perhaps so much that they will splash out on keeping their homes well decorated and furnished whatever the economic weather.

With that theory in mind, I am glad to have stumbled across Walker Greenback (LSE: WGB), a firm that specialises in luxurious interiors for the mid to upper end of the premium market.

Must-have brands

The firm designs, manufacturers and markets wallpapers, fabrics and a range of ancillary interior products, all under the brand names Sanderson, Morris & Co, Harlequin, Zoffany, Scion and Anthology. These brands, the firm says, offer solutions for customers, designers and contract interiors by covering a wide range of tastes from traditional to ultra contemporary.

Walker Greenback trumpets its made in Britain heritage, which in itself strikes me as a good selling point. On top of that, the companys show rooms are in all the right places for hooking the rich, including London, New York, Paris and Dubai, and the firm also runs partnership arrangements in Moscow and Shenzhen. On the face of it, Walker Greenback ticks all the right boxes, but how well has the firm been trading?

Strong growth

Despite targeting the well healed, there is bound to be a good deal of cyclicality in Walker Greenbacks business. However, growth since 2010 has been strong and the shares responded well by multi-bagging over the period. Here is the companys financial record:

Year to January	2011	2012	2013	2014	2015
Revenue (m)	69	74	76	78	83
Pre-tax profit (m)	4.46	4.89	4.93	5.49	6.33
Net cash from operations (m)	4.26	4.28	5.8	5.95	3.26

That looks like well-balanced progress with cash flow broadly supporting the expansion in revenue and profits.

At todays 214p share price, Walker Greenback trades on a forward price-to-earnings (P/E) ratio of just under 18 for year to January 2017. City analysts following the firm expect earnings to grow 6% that year and to cover the dividend payout almost four times. Thats encouraging a high level of dividend cover suggests the directors see more opportunity for growth ahead, otherwise they might hand more back to investors in the dividend. Right now, the forward dividend yield runs at around 1.5%.

One to watch

So Walker Greenback isnt cheap, but the firm has potential. In an interesting recent development, one of the firms factories suffered extensive flooding, which will have an adverse impact on machinery, stock and profits.

The company has a comprehensive insurance policy, it says, which covers flood damage and business interruption, and has already logged a claim. However, maybe this or some other temporary setback could end up knocking the share price. If it does, we could see an opportunity to dig into further research with a view to buying some of the firms shares.

Or should I go for Aviva?

FTSE 100 constituent Avivas (LSE: AV) valuation certainly looks lower than Walker Greenbacks. At todays 498p share price, Avivas P/E ratio comes in at just over 10 for 2016. However, Im not keen on insurance firms because they fall into the wider category of financials.

The trouble with financials is that they tend to be very responsive to macro-economic cycles. A good lurch down in the economy can really pull the rug from full-on cyclicals such as Aviva. On the other hand, maybe Walker Greenbacks brand strength and its affluent market could provide some watering down of the most onerous effects of cyclicality.