Company meetings

A spotlight on three of the
key companies we’ve met
during the past quarter

Cranswick


Price £30.50
52 week high-low £33.61 – £23.00
Net Yield 1.53%
Hist/Pros PER 22.90 – 21.00 Equity
Market Cap £1,539m

CONSUMER GOODS
Adam Crouch, CEO

Cranswick was born out of a few farmers clubbing together to produce high quality pig feed. They recognised that the quality of what went into their pigs had a marked effect on their end produce; one of the first ‘farm to fork’ offerings.

Today, Cranswick is one of the largest food producers in the UK. Although pigs still make up around 90% of their revenues, they have moved into poultry of late and are excited about the growth opportunities within this second protein market.

Cranswick produce roughly 55% of their own pigs, choosing to buy-in the remainder for various reasons, including diversification, but also as a function of their rapid rise in reputation over the years. For the poultry business they are roughly 80% self-sufficient, also owning a feed business.

One of the beauties of their business model is the ability to sell what they call ‘the fifth quarter’. After the animal is slaughtered, and what we might consider the more conventional cuts of meat are extracted, instead of disposing of the remainder (which is both expensive and wasteful), those parts are shipped o  and sold to the Far East. This is highly efficient and one of the reasons Cranswick boasts strong margins relative to the industry.

Another contributing factor is their attitude towards embracing new technologies in their facilities. A recent example is a laser cutting machine which first takes a 3D image of a lump of meat and then works out the most efficient way to slice it in order to minimise wastage.

Management have invested heavily in both machinery and new facilities over the last few years which should stand them in good stead to grow over the medium term.

Dechra Pharmaceuticals


Price £22.50
52 week high-low £24.58 – £15.30
Net Yield 0.95%
Hist/Pros PER 80.40 – 30.80
Equity Market Cap £2,323m

HEALTHCARE
Richard Cotton, CFO

Dechra Pharmaceuticals (Dechra) is an international veterinary pharmaceuticals business. They specialise in the development, manufacture and sales of a portfolio of branded and generic drugs, exclusively for vets around the globe.

Their largest business division is Companion Animal Products (CAP) making up circa 53% of the group revenue. This essentially is made up of drugs for dogs and cats treating a variety of ailments from skin problems to endocrinology. CAP makes up over 90% of North American revenue, and roughly half of European – although this may have changed following a large acquisition, more on that later.

The next largest is Food Producing Animal Products (FAP). This segment targets reducing the incidence and spread of disease in livestock. Predominantly through antibiotics, but via a recent acquisition of a company called Genera, Dechra are dipping their toe into poultry vaccines. One of the main structural drivers for this division is simply that the world is consuming more and more meat. The balance of the group is made up of an Equine and a Diets business.

Dechra has shown over the years its strong ability to grow not only organically but by acquisition. The latest example of this being the announcement in January that Dechra has acquired two European businesses, AST Farma and Le Vet. These two are considered one business in essence as they work closely together in Europe, with AST taking the Netherlands and Le Vet the surrounding countries. Dechra has worked with both for a number of years, being one of Le Vet’s chosen distributors in Europe already.

The acquired pipeline is said to more than double that of the whole group. When this is considered alongside the opportunity for significant revenue synergies, the importance of the acquisition becomes evident.

Tesla


Price $335.49
52 week high-low $389.61 – $242.02
Net Yield 0.00%
Hist/Pros PER N/A
Equity Market Cap $56,653m

CONSUMER GOODS
Martin Viecha, Head Of Investor Relations

There are an extremely large number of moving parts that make up Tesla, the king pin of electric vehicles, but the focus when meeting with them centred on the main growth driver, the newly announced Model 3. A car touted as being the reasonably priced electric car for the mass market.

Despite only delivering just over 1,500 Model 3’s in 2017, we are informed that by the second quarter 2018 we can expect production lines to be churning out 5,000 cars a week, with that number increasing over time. Is this too ambitious given their poor track record in meeting production deadlines?

Let’s humour them for a second though; by looking at how simple the Model 3 is to actually build, the numbers become feasible. Without an internal combustion engine and the trouble that goes along with it, you just need to assemble three main parts; a battery pack, a chassis and the main shell. The acquisition of the German robotics company Grohmann Engineering aids this further by recoding their entire production line.

Tesla are in the privileged position of having logged more drive hours than any other manufacturer of electric vehicles. This is one of the most difficult things to accomplish and vital in appeasing health and safety regulators. Despite this, Tesla admit they still aren’t certain what will happen at the end of a battery or vehicle’s life span until they run it to exhaustion.

One potential stumbling block comes in the form of the batteries. Tesla use lithium ion batteries, which many argue are not the future of battery technology. Cumulative consumption of lithium could total around 50 million tonnes by 2050 at our current rate. Reserves are currently estimated at just 14 million meaning something will have to change soon.

BASIC MATERIALS

CRODA INTERNATIONAL


CONSUMER GOODS

TESLA, ASSOCIATED BRITISH FOODS, IMPERIAL BRANDS, BRITVIC, CRANSWICK RECKITT BENCKISER GROUP


CONSUMER SERVICES

AO WORLD, RELX


FINANCIALS

HSBC HOLDINGS, BIG YELLOW GROUP, BARCLAYS, AVIVA


HEALTH CARE

GLAXOSMITHKLINE, GENUS, SHIRE, DECHRA PHARMACEUTICALS


INDUSTRIALS

ASSA ABLOY, CLIPPER LOGISTICS, SMURFIT KAPPA GROUP 


TECHNOLOGY

The SAGE GROUP


TELECOMMUNICATIONS

BT GROUP


UTILITIES

SEVERN TRENT, SSE, PENNON GROUP

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