Tag Archives: shareholders

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: Intertek

This week I am looking at Intertek Group Plc, the global inspection, testing and certification company. The specialist organization has more than 42,000 employees across 100 countries and provides quality and safety assurance to companies across several industries.

The company’s latest interim results were better than expected for the first six months of the year. Revenues were up nearly 14% compared to last year, while pre-tax profit jumped almost 28%. Management also upgraded their profit margin guidance from “moderate” to “robust”. Indeed, it has been a good couple of years for Intertek and this has been reflected in the share price, which has risen nearly 125% since the end of 2015 to its recent all time high of 4880p per share.

The global quality assurance industry has seen rapid growth in recent years as regulators are demanding stricter compliance measures and increased focus on risk management following several high-profile scandals that highlighted gross negligence by the companies involved. Intertek was well positioned to capitalise on the increase in demand.

That said, its resources division, which provides services to the oil, gas and mining sectors, suffered a dip in revenues. This was due to lower capital investment from its clients, but investors seem to have looked past this isolated weakness given the division’s relatively small contribution to overall revenue and the fact that the majority of its oil & gas exposure comes from fairly stable sources of operational expenditure and cargo inspection. The question for long term investors, however, is whether the strong performance and upbeat prospect still leave the stock as an attractively priced investment given the recent rise in the share price.

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/

June 2017 Market Review

 This edition of the Market Review discusses another surprising election result.

The UK General Election delivered yet another surprising political result. Overall, the market’s response has been measured, but political uncertainty remains high and valuations are no longer cheap following an 18-month period of strong performance. Whilst this dampens our enthusiasm for new investments in the short term, the long-term case for equities remains compelling. Moreover, our emphasis on quality, value and diversification leaves us confident that our portfolios are well prepared for a wide variety of eventualities.

June 2017 Market Review

Stocks in Focus: Monks Investment Trust

This week I am looking at Monks Investment Trust, which aims to achieve long-term capital growth from a global equity portfolio.

It is now just over two years since investment management partnership Baillie Gifford, which is responsible for Monks, announced that the management team of Gerald Smith and Tom Walsh were being replaced with its Global Alpha Equity Team in an attempt to improve performance. The new management team wasted no time in implementing its investment process. This involves seeking out attractively priced growth companies and allocating these investments into one of four growth buckets that make up the portfolio. The first bucket is “Stalwarts”, which are companies that are expected to deliver reliable earnings growth of 10% per annum. The second bucket is “Rapids”, which are companies with a 15-25% expected growth rate per annum. The third bucket is “Cyclicals”, which are companies with volatile earnings that should nonetheless deliver earnings growth of around 10% per annum over a cycle. The final bucket is “Latents”, which are companies that are considered slow burners and do not have a specific target but are expected to see accelerating growth over time.

Since reorganisation, the trust’s net asset value (NAV) has gained 45% against a FTSE World benchmark gain of 37%. We are very happy with the new management team and believe the fund provides attractive exposure to global growth companies. However, the strong performance has seen the share price move to a premium against its NAV (whereas historically it has tended to trade between a 10% and 15% discount) and this makes it less attractive in the short term.

https://www.nwbrown.co.uk/news/2017/jul/5/stocks-focus-monks-investment-trust/