Tag Archives: share price

Stocks in Focus: Shell

This week I am writing on Royal Dutch Shell, a company I last wrote about in 2015, when it agreed to buy BG for a consideration of £47bn.

The integration of BG’s assets remains on track and with synergies from this deal and leveraging efficiencies, Shell has stripped $10bn of annual operating costs from its business.  On top of this, the enlarged company is continuing to drive down its debt ahead of targets and has reduced capital expenditure by $20bn.

While the integration of BG’s assets is running to plan, Shell cannot rest on its laurels.  A switch from fossil fuels to more clean energy sources over the long term will put pressure on demand.  One example of this is the move of car manufacturers towards producing electric vehicles (EV) or hybrids.  To counter the move away from fossil fuels, many of the big oil and gas companies are investing heavily in renewable energy solutions.  Shell has committed to invest up to $1bn per annum in “new energy” by 2020, including an investment in hydrogen production to rival the EV market.  While this is a fraction of their overall capital expenditure it shows that the company is trying to future-proof its business as the demand for oil inevitably falls.

Shell also highlights that there will need to be a stable source of electricity when wind and solar are not available.  The management see gas providing this stability and have increased their liquefied natural gas (LNG) capabilities with the purchase of BG.

The success of Shell compared with its peers will be determined by how well it manages this switch to renewable energy sources.  Any heavy investment now would be a drag on cash and the adoption rate for electric vehicles, for example, may be slower than anticipated.  However if Shell delays investing in renewable energy it risks being left behind in a declining sector.

https://www.nwbrown.co.uk/news/company-report-library/

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Stocks in Focus: Dunelm

This week I have been looking at national homeware store Dunelm.  The company reported annual results on Wednesday 13 September that were in line with market expectations.  The company had a weak start to the year as a result of unpredictable weather combined with the tightening of consumer spending.  The second half of the year performed better with Easter falling later and improvements in the timing of promotional and seasonal events.  It has been an eventful year for the company following the purchase of online homeware retailer Worldstores from administration, together with the sudden departure of CEO John Browett at the end of August.

Dunelm had been interested in Worldstores for twelve months before the company went into administration, allowing Dunelm to take the initiative to buy the assets for a nominal £1.  The acquisition and ongoing integration of Worldstores is allowing Dunelm to accelerate both its furniture and online offerings.  Worldstores focussed predominantly on producing and sourcing furniture and selling through their online store.  These were both areas where Dunelm was underrepresented.  Worldstores also owned the Kiddicare baby and infant products store.  Whilst not a traditional core business to Dunelm the company believes that an integration of the brand, perhaps as a mezzanine level in existing stores, could help drive footfall of an otherwise untapped customer demographic.

The change in management at the top was not so surprising given the disappointing performance of the company over the prior two years.  However, for the interim, the company seems to be in good hands under the executive leadership of Chairman, Andy Harrison (previously CEO of Whitbread), incumbent CFO Keith Down and founder and majority shareholder, Deputy Chairman Will Adderly. They have lofty ambitions to double Dunelm’s sales over the next five years or so but investors are currently wary that the company’s prospects are ultimately tied to the strength of increasingly squeezed UK consumers.

Stocks in Focus: Templeton Emerging Markets

This week I am looking at Templeton Emerging Markets (TEM), which is an investment trust that aims for capital appreciation through investing in companies that either operate or are listed in emerging markets. The trust is coming up to its second year of new management after emerging markets pioneer Mark Mobius stepped down from his 26 year tenure as lead manager, to be replaced internally by Carlos Hardenberg.

Mr Hardenberg has enjoyed a good start to his tenure, having significantly outperformed the index since his appointment (96% vs 67%). In a recent presentation it was particularly interesting to read his thoughts on the rising influence of passive investment and the risks associated with this.

Passive investments replicate the index and provide investors with cheap access to markets. However, the large sums that have been flooding into the emerging markets have significantly changed the ownership of the underlying companies. Due to the nature of passive investors, TEM is unable to work with them when it comes to voting or improving corporate standards, a key aspect of investing in emerging markets. Furthermore, the large flow of money into investments that replicate the index also increases the dominance of certain countries and companies. Specifically, the top 5 countries in the Emerging Markets Index make up 71% of the index, and the top 10 companies account for 24% of the index.

The danger here is that passive investors are, perhaps unknowingly, being crowded into a fairly concentrated selection of countries/companies that are being inflated in value by the weight of money being invested in them. By using an actively managed fund such as TEM, investors can gain exposure to a more sensibly constructed portfolio of assets that takes into account diversification and value.

https://www.nwbrown.co.uk/news/company-report-library/

Stocks in Focus: GlaxoSmithKline

I am once again looking at GlaxoSmithKline (GSK) following the announcement of its first set of results since the appointment of Emma Walmsley as Chief Executive. Ms Walmsley has been with GSK for seven years, having previously worked at L’Oreal in a variety of marketing and management roles. With Pharmaceuticals being the core of GSK’s business, it is unusual to have a CEO whose experience lies outside the core division – although the ability to review the division from a fresh perspective could well be advantageous.

The second quarter results were slightly ahead of consensus, giving Ms Walmsley a solid start to her tenure. Alongside the results she set out her key objectives for the first time, highlighting the need to prioritise improvement of the core Pharmaceutical division. In short, GSK needs to become better at developing and commercialising lucrative drugs. Despite launching high volumes of new drugs, the company has not seen many of these lead to huge sales. Indeed, GSK’s last “blockbuster” product release was the asthma treatment, Advair, which at its 2013 peak made up one-fifth of the group’s revenues.

Ms Walmsley therefore plans to strengthen the pipeline by a) increasing the amount spent on research & development, and b) channelling 80% of this spend on a narrower set of four therapy areas (Respiratory, HIV, Immuno-inflammatory and Oncology). She also plans to bring about a more dynamic/accountable commercial model to help the business make the most of its innovations.

With an enthusiastic, fresh CEO at the helm and a credible plan in place to increase productivity over the long term, GSK looks well set. However, it is fair to say that previous attempts to increase productivity and commercial success have not been entirely successful – and investors may therefore want to wait for some evidence of success before buying into Ms Walmsley’s vision.

https://www.nwbrown.co.uk/news/company-report-library/ 

Stocks in Focus: Reckitt Benckiser

This week I am revisiting Reckitt Benckiser, the global consumer goods company. In November of last year I mentioned how the company had a good start to 2016, supported by a successful cost savings programme and sales figures beating expectations. This year however, things have turned a little sour for the company with the news of a cyberattack taking its toll on operations and revenue.

The global cyberattack on multinational companies last month disrupted Reckitt’s ability to manufacture and distribute products to customers in multiple markets. Some of its factories are currently still not functioning normally but plans are in place to return them to full operation. Management stated that while it expects some of the sales lost in the past 3 months to be recouped in the current quarter, continuing supply chain disruptions mean that they could lose customers. As a result of these problems, Reckitt now forecasts a 2% revenue growth instead of the 3% originally expected.

Acquisition speculation is also in the news for Reckitt Benckiser as Unilever and Hormel Foods are believed to be bidding to acquire its £2.2 billion food division known for brands such as French’s Mustard and Worcestershire sauce. All three companies involved have not commented about the speculation, but we will surely find out more in the coming weeks.

Although Reckitt Benckiser is facing a tough period at a time when its shares are valued relatively highly, the company has historically shown resilience in difficult periods and consistent growth over the long run. Furthermore, its non-cyclical nature continues to be attractive to the long term investor.

https://www.nwbrown.co.uk/news/2017/jul/19/stocks-focus-reckitt-benckiser/

Stocks in Focus: Tate & Lyle

This week I am looking at Tate & Lyle, the food and beverage ingredients manufacturer, which announced full year results on 25 May.  The results for the last financial year were in line with consensus.  Sales increased by 17% and the company benefitted from the weak pound.

Tate & Lyle’s business is split into two divisions.  Bulk Ingredients (BI) is involved in the production of generic sweeteners such as high fructose corn syrup, whereas the Speciality Food Ingredients (SFI) division produces more technical and often patent protected ingredients.

Over the last two years, under the guidance of CEO, Javed Ahmed, the company has focussed on the higher margin SFI division and moved away from the more commodity related BI division.  However, it was the BI division which produced the strongest results in the last year with an operating profits increase of 32% to £129m. The SFI division still showed steady growth with an operating profits increase of 5% to £181m, which is pleasing to investors convinced by the management’s strategy.

As the SFI division becomes a larger part of the group, the company will transition to a higher quality business with greater barriers to entry.  However, the new US Administration plans to reform the North American Free Trade Agreement, which could prove to be difficult for the BI division as Mexico is a key export market for the corn wet milling industry, particularly for high fructose corn syrup.

Our long term outlook remains positive for Tate & Lyle given the improving quality of the business, their focus on SFI and a confident management. However, the recent share price performance has been strong and investors should continue to be mindful of the price paid for stocks.

http://www.nwbrown.co.uk/library/

Stocks in Focus: Centrica

It has been an interesting few weeks in the utilities sector after the Conservative Party’s pledge to cap prices on standard variable tariffs as part of their manifesto for the upcoming general election. Centrica, the parent company of British Gas and the biggest energy supplier in the UK, warned that such a price cap would “lead to reduced competition and choice, and potentially higher average prices”, drawing on evidence from countries that already have a similar policy. Indeed, according to uSwitch, the average price of the cheapest deal offered by the six biggest energy providers rose faster than for the market as a whole since the plan was initially announced at the Conservative conference in October last year. However, not all of the big 6 have raised their prices – British Gas, for example, has frozen its prices until August 2017.

In a trading update earlier this week, Centrica reported a drop in its UK domestic customers since the start of the year as households switched to rivals, while unusually warm weather also led to lower than expected revenue from energy consumption. Despite this, the company is keeping its guidance to deliver on a range of targets for 2017, including reducing net debt and generating adjusted operating cash flow of more than £2bn through its cost efficiency programme.

Looking forward, market conditions are likely to remain challenging for Centrica in the short term due to the pressures of a possible price cap. Set against this, however, the company has expressed its confidence in being able to navigate this regulatory clampdown and maintain its financial targets through its competitive pricing, cost efficiency and focus on quality rather than quantity of its customer base.

http://www.nwbrown.co.uk/library/