Monthly Archives: November 2015

Points of View: First State Stewart

This week I am focusing on fund management group First State Stewart. To preserve its boutique culture, the firm – which has been running Asia Pacific, Emerging Markets and global equity strategies since 1988 – has been split into two separate entities: Stewart Investors in the UK, and FSS in Hong Kong.

First State Stewart has always preferred to keep small, dynamic teams to encourage the individual members to develop and thrive; and the historically small size of the group has been critical to their success. However, for some time, they have been contending with the burden of scale. With its successful long-term track record, they have experienced sharp inflows of investors’ money over the years such that a number of their flagship funds have ballooned in size. They have therefore had to be disciplined in closing a number of their funds to new investment so as to prevent capacity issues and to protect shareholders’ interests.

In order to address capacity, First State Stewart – which invests in good quality businesses to achieve long term capital growth – was aware they could reduce their own internal threshold as to what constitutes “quality”. However, this is clearly undesirable and would compromise what they want to achieve for their shareholders. The next logical step was therefore to separate the teams, thus ensuring they keep their own identity while also enabling opportunities for future growth.

First State Stewart believes that their teams are the strongest they have ever been. Moreover, they are happy that the firm’s investment process, which is deeply embedded in their DNA, will continue to be implemented successfully.


Stocks in Focus: St Ives

This week I am looking at St Ives, an international marketing services group with a strong list of clients. They have a particular focus on large, blue chip, consumer facing businesses including companies with international brands such as Adidas, Bosch, Johnson & Johnson, Google and GlaxoSmithKline. St Ives recently held a capital markets day, which is an opportunity for the management to provide a full review of the company’s strategy for growth, its operations and their financial targets. Such events are specifically aimed at analysts and investors.

The main focus for the day was the Strategic Marketing part of the business, which has been grown from scratch in the last five years via several acquisitions and now represents 50% of group operating profit. The division comprises 10 businesses focusing on three segments; Data, Digital and Insight. They all operate autonomously as individual brands but offer complementary services and share a common culture and attributes.

When acquiring businesses St Ives has a very clearly defined approach and they look for dynamic, agile businesses with a proven track record and no legacy baggage. Once acquired, St Ives provides investment to help accelerate growth, including help to secure a growing contribution from clients based outside the UK, and support to facilitate collaboration across the Group. The federal system that St Ives has established is a key driver of the company’s success.  It has enabled them to compile an impressive set of Strategic Marketing companies, each with an attractive combination of established track record, strong client list, differentiated service and opportunity for growth.

Stocks in Focus: Tate & Lyle

Two years ago I wrote an article about Tate and Lyle, explaining how the company was transforming its business from a focus on bulk, commodity linked ingredients to a more specialised food ingredients business.  A lot has happened to Tate and Lyle since writing that article and this week I am reporting on the latest developments following its recently announced interim results.

Over the past couple of years Tate and Lyle has had a number of headwinds and challenges to face.  First, a large amount of Sucralose flooded the market from Chinese manufacturers, putting significant pressure on the margins of its sucralose division.  Supply chain issues then constrained growth of the speciality food ingredients (SFI) division and caused a drag on cash flow as the situation was resolved.

Despite these issues the recent trading update was broadly positive.  The company now has more than half of its operating profits derived from the growing SFI division and it is targeting 75% by 2020.  They are also in the process of implementing a new IS/IT system over this financial year that will help them manage the supply chain better.

Furthermore, its pipeline of new products looks strong. In order to grow the SFI division it is important for Tate and Lyle to continue to develop and create new, innovative ingredients.  During the results presentation, CEO Javed Ahmed was keen to highlight the success of recently launched products and to emphasise the company’s ongoing commitment to research and development. There are 22 products currently in various stages of testing and management is targeting an ambitious $200m of profit derived from new products by 2020.

Points of View: UK Telecoms Sector

This week I will be looking at the UK telecommunications sector, within which there has been some notable news flow recently. First, there was the TalkTalk hacking scandal where 1.2 million customers’ personal information was stolen. Subsequently, Vodafone also stated that their mobile network was subject to a cyberattack last week leaving just under 2,000 customer accounts exposed. Both companies are now taking necessary measures by collaborating with authorities and advising their customers accordingly.

BT Group has also been in the news last week as the Competitions and Markets Authority (CMA) provisionally approved the company’s £12.5bn acquisition of mobile network EE. Despite rivals arguing that the takeover would create a dominant fixed-line and mobile company, the CMA concluded that the acquisition “is not expected to result in a substantial lessening of competition in any market in the UK”. Meanwhile, the European Commission has started an in-depth investigation into the proposed acquisition of Telefonica UK’s O2 operations by Hutchison Three UK. The investigation will consider whether the combined company would harm competition following the Commission’s concerns that the deal could lead to higher prices, less choice and reduced innovation for customers of mobile telecommunications services in the UK. The formal assessment will take approximately three months to complete.

Consolidation in the telecommunications sector is seen by many as the best way for these companies to reduce costs, increase revenue and realise significant synergies.  However, competition authorities will be keen to protect consumer interests and cybersecurity is clearly becoming an issue that the industry needs to address.