Company meetings

COMPANIES WE’VE MET DURING THE PAST QUARTER

John Royden, Head of Research
Theo Wyld, Research Analyst

BRITVIC


PRICE: £6.33 52
WEEK HIGH-LOW: £7.38–£5.21
NET YIELD: 3.89%
HIST/PROS PER: 14.4–13.2
EQUITY MARKET CAP: £1,661m

CONSUMER GOODS 
Steve Nightingale (IR Director) 

Britvic is one of the leading soft drinks companies headquartered in the UK, where they generate almost two-thirds of their revenues. Their international operations consist predominantly of three markets; Ireland, France, and most recently Brazil. The balance comes from the US and India, through franchising and licensing agreements. 

Their portfolio of brands includes many household names such as Robinsons, J2O, and Tango. Alongside these own-formulated offerings, Britvic have exclusive agreements to manufacture and sell a number of PepsiCo’s most famous drinks such as 7UP, Mountain Dew, and of course Pepsi itself. 

A much talked about headwind for the likes of Britvic is the implementation of the Sugar Tax in the UK. This is due to come into place in April 2018 and penalises manufacturers of soft drinks which contain more than 5g of sugar per 100ml. Britvic, along with its peers, has been working hard to shrink the proportion of its portfolio exposed to this tax. At December 2016, c.68% by volume produced contained ‘low or no sugar’.
 
Unfortunately, the majority of the remaining c.32% by volume is made up of the high-sugar PepsiCo offerings. PepsiCo are highly unlikely to reformulate their drinks just for the UK market, and also unlikely to≈absorb any of the tax costs charged to Britvic. 

This leaves Britvic with two options; first, absorb the tax themselves; or second, attempt to pass the costs forward to the supermarkets. The former is detrimental to margins and the latter may prove tough given the price pressure the UK supermarkets are under. It will be interesting to see where the tax lands, but although the UK is a key market, it is not the be-all and end-all. Their latest expansion into Brazil seemed out of place at the time but is appearing more astute and exciting over time. 

PROVIDENT FINANCIAL


PRICE: £27.88 52
WEEK HIGH-LOW: £34.02–£21.25
NET YIELD: 4.39%
HIST/PROS PER: 15.9–16.2
EQUITY MARKET CAP: £4,134m

FINANCIALS 
Peter Crook (CEO) and Andrew Fisher (FD) 

Provident Financial provide loans to the less credit worthy segment of our society. The pay-day loans industry has attracted some negative press over the past few years as journalists and others latched on to the high multiple 100% APRs that were being quoted on pay-day loans. 

You know Provident Financial are doing a good job when our Lords Spiritual keep themselves busy debating other topics. That indeed has been the case since the subject gently faded from view following Justin Welby, Archbishop of Canterbury’s 2013 House of Lords discourse on the subject. After all, the alternatives of loan sharks and baseball bats is always a less Christian solution to credit management amongst the poorer of our nation. 

So leaving the moral issues aside, Provident Financial runs Moneybarn (car finance), Vanquis Bank (credit cards), Consumer Credit (agents running micro-loans via door-to-door collections), Satsuma (pay-day loans) and the no-longer active, glo (pay-day loans with a guarantor). Vanquis has been the stand-out success of late. 

Crook said their Consumer Credit had been modernised with apps which had reduced the back office costs and improved repeat business. If Brexit worries tipped the UK into recession, Crook suggested that Vanquis and Moneybarn would be most impacted as many of the Consumer Credit’s cashflows are driven from recession-proof benefits payments. As such, Provident Financial had been tighter with Vanquis credit than before. He noted that Vanquis had a high customer turnover which then drove a high marketing budget. Crook also suggested that their growing expertise in data analytics was helping credit decisions. 

Provident Financial had been a star performer until 2016 when the shares stalled and we will watch to see how new initiatives like Satsuma and Moneybarn take hold. 

WS ATKINS


PRICE: £14.51
52 WEEK HIGH-LOW: £17.5–£11.91
NET YIELD: 2.76%
HIST/PROS PER: 17.2–12.3
EQUITY MARKET CAP: £1,460m

INDUSTRIALS 
Kate Moy (IR Director) 

WS Atkins (Atkins) is the UK’s largest engineering consultancy and the world’s largest global design firm. The payroll is c.18,000 names long, spread across 300 offices and 29 countries. The lack of real estate in a region is not prohibitive with Atkins reportedly having undertaken projects in over 150 countries. 

In 2011 Prof Dr Uwe Krueger took over the role of CEO and brought with him a new strategy. Part of this was to never engage in contracting, and he promptly initiated the sale of their various related businesses. But perhaps more importantly, he set a target of an operating margin of 8% in each of their four divisions, not just for the Group as a whole.
 
These divisions are as follows; the UK & Europe, the US, the Middle East, and ‘Other’ which incorporates the Asia Pacific and Energy. His strategy has been to target operational efficiency through a variety of initiatives at all levels of the business, including even introducing the need for junior engineers to account for each hour of unproductive time. The benefit of these procedures is evident with a 1% improvement in productivity having a 10% improvement to the bottom line. 

The second area of focus has been on portfolio optimisation, which is largely complete. For example, they sold off a highway services business which in essence was blue-collar work and could not command more than a 3% margin. 

Lastly, in terms of driving the top line, the question Uwe asked himself is ‘where can we grow faster?’ They identified Nuclear as a portion of the business to expand, siphoning engineers from their own Oil & Gas division as the market turned. 

In conclusion, Atkins has a world class pool of engineering talent and a disciplined executive guiding the way.

We also met the companies below and you can learn more on any of these by contacting the person at JM Finn & Co with whom you usually deal.

BASIC MATERIALS
Victrex 


CONSUMER GOODS 
A.G. Barr, Britvic, Fuller Smith & Turner, Imperial Brands, Marks & Spencer 


CONSUMER SERVICES 
Dixons Carphone, DMGT, Enterprise Inns, Entertainment One, Greene King, RELX, Whitbread, WPP 


FINANCIALS 
Barclays, Big Yellow Group, Euromoney, Paragon, Provident Financial, Rothschild 


HEALTHCARE
Smith & Nephew


INDUSTRIALS
CRH, DS Smith, Electrocomponents, Gooch & Housego, Intertek Group, RPC Group, Smiths Group, Wincanton, WS Atkins


OIL & GAS
BP, Hunting


TECH & TELECOMS
Vodafone


UTILITIES
Severn Trent

We met the companies below and you can learn more on any of these by contacting the person at JM Finn & Co with whom you usually deal.

BASIC MATERIALS

Croda, Elementis


CONSUMER GOODS

AB Foods, Berkeley Group, BooHoo.com, Burberry, Diageo, JD Sports, Safestore, Unilever


CONSUMER SERVICES

Dixons Carphone, Enterprise Inns, Marstons, Merlin Entertainments, RELX, Saga, Sky, St Ives, Tesco, Whitbread


FINANCIALS

Barclays, Big Yellow Group, British Land Company, Lloyds Banking Group, London Metric, Provident Financial, Prudential, SEGRO, Unite Group


HEALTHCARE

ConvaTec, Dechra Pharmaceuticals, Genus, GlaxoSmithKline, NMC Health


INDUSTRIALS

AA, Berendsen, Bunzl, Carillion, DCC, Equiniti, Experian, Halma, Hill and Smith, Intertek, Ricardo, Rotork, Travis Perkins


OIL & GAS

Guiness Global Energy Fund, Hunting


TELECOMMUNCATIONS

Servelec, Immarsat


UTILITES

Pennon, Severn Trent, SSE 

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