Company meetings

COMPANIES WE'VE MET
DURING THE PAST QUARTER

Theo Wyld, Research Analyst
James Godrich, Research Assistant

FEVERTREE


PRICE: £9.99
52 WEEK HIGH-LOW: £10.25-£4.15
NET YIELD: 0.38%
HIST/PROS PER: 65.7-56.3
EQUITY MARKET CAP: £1,115m

CONSUMER GOODS 

Tim Warrillow, CEO and Andy Branchflower, FD

In 2004 Charles Rolls and Tim Warrillow founded Fevertree. The company launched its first premium mixer, an Indian Tonic Water, in 2005 and in that a new drinks category was born. Fast forward 11 years and the company now has 12 different products sold across 55 countries producing an annual revenue of nearly £60m.

The group have been beneficiaries of the premium gin boom and have seen significant growth with a 55% revenue CAGR (compound annual growth rate) between 2009 and 2015. But with current availability in only 4,500 of an estimated 13,500 retail store addressable market and in just 10,000 of an addressable 55,000 on-trade sites they still have some way to go.

Rapid expansion is clearly a positive but has provided some difficulties for the Group which still only has 45 employees. One of these has been their reliance upon Brothers; a bottling company that manufactures around 90% of Fevertree's products. Management have looked to mitigate this though and have recently signed a contingency agreement with another UK bottler thus reducing operational risk. Aside from this and the more obvious concern around increased competition from copycat brands, there appear to be very few hurdles for Fevertree to jump in order to continue their growth story; a view that is reflected by the market through the stock's premium rating.

First mover advantage has given Fevertree real momentum in the premium mixer category. With 90% of the UK market share, 60% of the global market share and a size roughly eight times bigger than their nearest competition, the main challenge they face now is in staving off competition and maintaining their number one position in a rapidly growing market.

JOHNSON MATTHEY


PRICE: £33.14
52 WEEK HIGH-LOW: £33.90-£22.08
NET YIELD: 2.15%
HIST/PROS PER: 20.2-17.3
EQUITY MARKET CAP: £6,437m

BASIC MATERIALS

Simon McGough, Head of Investor Relations

Johnson Matthey is a specialist chemicals company that is split into five main divisions: Emission Control Technologies, Process Technologies, Precious Metal Products, Fine Chemicals and New Businesses.

Process Technologies sells chemicals mostly into the Oil and Gas sector and makes up 17% of group sales. Precious Metal Products, which makes up 10% of sales, distributes, refines and recycles precious metals. Fine Chemicals supplies active pharmaceutical ingredients and provides a relatively small 9% of group sales.

The Emission Control Technologies division, which currently makes up around 60% of total group sales, manufactures catalysts for vehicle exhaust emission control. Management expect sales here to double over the next 10 years driven by tightening emission legislation underpinning demand for high quality catalysts. But with a European diesel vehicle market in structural decline and the North American truck cycle turning lower, they may be relying on a shrinking market to drive growth across the group.

Through their New Businesses division though they will be hoping to more than make up for any long term decline in Emission Control Technologies. Despite an £18m loss at present in this division there remains growth potential, particularly within their exposure to Battery Technologies, a market leader in the development of materials and technologies of battery cells with particular application in the automotive sector.

Tightening legislation is likely to continue to drive sales in Emission Control Technologies in the medium term, but the long-term success will depend upon their ability to begin driving profit from their exciting New Businesses division.

SPECTRIS


PRICE: £19.58
52 WEEK HIGH-LOW: £20.15-£14.41
NET YIELD: 2.54%
HIST/PROS PER: 22.6-16.8
EQUITY MARKET CAP: £2,357m

INDUSTRIALS

John O'Higgins, CEO and Clive Watson, FD

Spectris is a well-managed electronic equipment supplier operating across a broad footprint of activities, with productivity enhancing measures being a general theme. In the past, the company focussed on standalone products but management recently shifted the goalposts with the aim of providing the whole solution: hardware, software and services.

Spectris has a proven track record of in-filling its fields of expertise with niche, value added acquisitions of smaller operators. I expect the majority of these in the future to be concentrated around the areas of the 'full service' in which they are currently lacking, mainly software.

However, with this comes an added complication: software companies sell for higher multiples, typically. Spectris are used to paying an average of 10x EBITDA for their targets; the average for those further on the software side have price tags of nearer 15x. Therefore, bolstering the portfolio with quality in that department will be difficult given the company is unlikely to pay those multiples. A silver lining of this inability to invest to their desired level is that, as they creep ever closer to net cash, they have said they will return this excess to shareholders in the form of dividends and/or share buybacks. Of course, this underinvestment would likely still come at the detriment to the longer-term strategy.

Spectris have launched 'Project Uplift' a programme aimed at finding efficiencies and cost savings across operating companies. Previously, each company acted separately but management have decided there could be significant gains to be made by consolidating the likes of IT, HR and suppliers etc. No numbers have been provided yet, but given the number of operating companies the synergies could be material.

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

Johnson Matthey


CONSUMER GOODS

Fevertree Drinks, GKN


CONSUMER SERVIECS

Daily Mail & General Trust, Marks & Spencer, WPP, Greggs


FINANCIALS

HSBC Assura, Shaftesbury, Big Yellow Group, Standard Life, Shawbrook Group, Hammerson, London Stock Exchange, Lloyds Banking Group, Workspace Group


HEALTHCARE

Eco Animal Health Group


INDUSTRIALS

Spectris, Experian, Travis Perkins, RPC Group, Halma, Cobham, Gooch & Housego, SIG


OIL & GAS

AMEC, BP, Royal Dutch Shell


TELECOMMUNCATIONS

Vodaphone, BT Group


UTILITES

Centrica

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