Tag Archives: shares

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/

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/

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/

Stocks in Focus: Unilever

This week I am looking at Unilever again following management’s strategic review of the business, which was prompted by the failed takeover approach by Kraft Heinz in February. Most notably, the decision has been made to reduce the number of divisions from four to three by combining the Food and Refreshment divisions – with the rational that this will enable faster margin progression. As part of the restructuring, plans have begun to dispose of the  ‘spreads’ category, where sales have been in decline for a number of years, causing a drag on profits.

Management have already engaged in a number of cost saving initiatives over the last two years and intend to increase their efforts with the aim of improving underlying operating margins to 20% by 2020. Part of these cost savings are expected to come from cutting the marketing budget, and in particular reducing the amount of TV adverts aired. This reflects the difficulties many consumer companies face with how to successfully market to customers in a predominantly online era. In addition to reinvesting back in to the business, management has announced a €5bn share buy-back for the remainder of this year and a 12% increase in the dividend.

Initially, shareholders were concerned that the business would change drastically after the review and take on too much debt in the hope of “putting off” further takeover interest. It is encouraging to see that this has not been the case, and that it has been recognised that the existing business model continues to be successful. The news has so far been taken well by investors and the shares continue to trade at all time highs.

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

Stocks in Focus: Smith & Nephew

This week I am looking at Smith & Nephew, a leading UK-based global manufacturer of medical devices, following a transitional year bringing the business back to growth. The company operates across three specialist divisions: Reconstruction (hips and knees), Advanced Wound Management and Sports Medicine & Trauma.

The group has faced a number of setbacks in recent years, many of which stemmed from a flawed corporate structure of separately operated ‘silo’ divisions, which led to restricted innovation. This allowed competitors to catch up and take market share, although the company still enjoys a top 5 position across all the categories it operates in.

Management was then put in to question last year with the announcement that the CEO, Olivier Bouhon, had been diagnosed with cancer and would require treatment across much of the year. In addition to this, it was revealed that the CFO, Julie Brown, would be leaving to join Burberry after 3 ½ years with the company.

Despite these challenges, Smith & Nephew recently published positive full year results, demonstrating a return to growth and an encouraging outlook for the future, particularly within Sports Medicine. The internal restructuring of the business is now complete, which promises improved execution across the divisions and a stronger pipeline of new products. Olivier Bouhon (CEO) is now back at the helm and has recently announced the appointment of a new CFO, Graham Baker, who has 20 years’ experience at AstraZeneca and is expected to be a good addition to the board.

With a better structure in place and strong management team behind it, Smith & Nephew should now be well positioned to take advantage of an era where an ageing population and active younger generation mean health solutions are more essential than ever. Nevertheless, competition remains fierce and management will need to continue to drive innovation within key growth areas to keep ahead in this market.

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