5 December 2017

Companies we've met this quarter


Price £51.50
52 week high-low £54.70–£31.61 Net Yield 1.27%
Hist/Pros PER 30.6–27.8
Equity Market Cap £8,448m


Josh Egan, Director IR

Intertek is one of those companies that piggybacks on global trade. Technically the company is a global leader in testing, inspecting and certifying products, commodities and services. For a practical example consider a Chinese manufacturer of toy cars wanting somebody to (a) advise them on European toy safety legislation and then (b) certify to the UK customer like Toys R Us, that the toy cars are compliant - Intertek does the job. Alternatively, if you are delivering a shipment of soybeans and you need moisture and fungus-free certification then Intertek is who you call.

Intertek last featured as an “Equity Prospect” in the summer edition of this publication when shares cost just under £43; they are now at £54.

Our recent meeting with Josh Egan focussed on the way that Intertek have created a supply chain audit service, called Business Assurance, which covers everything from fire risks in emerging markets factories, to working conditions and the potential for brand damage associated with adverse environmental impacts. They see strong growth here by going beyond pure statutory compliance and in terms of cross selling opportunity. Intertek think they have a competitive advantage in this respect.

Intertek’s aspiration to GDP plus growth is driven by e-commerce which allows retailers to produce more and more varieties of SKUs (stock keeping units) in an effort to differentiate and create barriers. Each SKU probably uses different chemicals which need testing and that helps Intertek.

New CEO, Andre Lacroix has given strong thought into how to run a matrix organisation with overlapping country and business units. I think Intertek appear to be con dent that they have cracked this one, whereas competitors SGS and Bureau Veritas have not.

Intertek have also invested heavily in evolving lab technicians into strong business managers and these managers get rewarded on margin accretive growth.


Price £18.83
52 week high-low £19.34–£15.24 Net Yield 2.09%
Hist/Pros PER 17.7–13.4
Equity Market Cap £49,002m


Richard Gradidge, Director of Capital Market Relations

Prudential (“The Pru”) is mostly a life and health insurer that o ers a range of financial products such as annuities, asset management and related services. The Pru owns M&G and now plans to merge M&G with its own fund management operations.

The Pru is unique amongst the UK-listed life insurers in that the majority of its value lies in the US and in emerging markets.

There are regulatory risks with the Pru’s emerging markets but for the time being, this risk looks relatively long dated as they welcome the concepts of health and life insurance; and so we are not overly concerned. The Chinese Government wants to see life insurance penetration rise from 1.9% (2014) to 5% by 2020. This highlights some of the opportunity for the Pru as their distribution reaches 60% of the population and 70% of GDP via their joint venture with Citic Bank.

In the US the issues at hand revolve around the basis upon which the agents selling the Pru’s variable annuities get remunerated.

The Pru is confident that its formidable relative performance will enable it to continue to take market share with its strong links to the distribution network. They also think that they can develop new channels to market.

In the UK, merging M&G with the Pru’s fund management now looks sensible; there are considerable cost savings that should arise from shared services and systems. The Pru is moving away from the capital intensive annuities market and more towards its with-profits PruFund with cashflow benefits. Speculation abounds that consolidating the UK business into one unit could facilitate a breakup of the group.



Price £35.76
52 week high-low £43.33–£33.65 Net Yield 2.78%
Hist/Pros PER 13.8–13.8
Equity Market Cap £6,502m


Alison Brittain, CEO & Nicholas Cadbury, FD

When Alison Brittain joined Whitbread as CEO in January 2016 she came with the reputation of being a fearsome cost cutter, so it was no surprise to us that just ten months into the job she had announced a five year, £150m cost efficiency programme.

One year on from that and the effects appear to be being felt just in time to offset cost pressures from the national living wage, increasing business rates and input cost inflation. It is alongside these pressures that declining like-for-like revenue trends, particularly within Costa Coffee, add to concerns for the group.

Whitbread is made up mostly of two household brands in Premier Inn and Costa Coffee.

Costa has been a beneficiary of the coffee revolution over the last decade and management now see the next leg of growth from what they call their ‘growth formats’ which include Costa Express machines, Drive-Thru stores and their international expansion. Whilst these growth opportunities o er exciting prospects for the business, they come against a backdrop of risks around market saturation and declining real wages likely to impact discretionary consumer spending.

Premier Inn has been much less of a cause for concern of late. Like-for-like growth has been steady, if unexciting, with growth opportunities from alternative formats such as Premier Inn Hub and their expansion into Germany providing continued optimism for shareholders.

Whitbread’s growth strategy means spending all of their available cash flow on capex to drive future growth. Valuing Whitbread therefore revolves around understanding if and when the company goes cash flow positive and to what extent. Distant expectations are not without risk; but with risk can sometimes come reward.

Polymetal International, Central African Gold, Croda International, Elementis

GKN, Persimmon

Whitbread, RELX, N Brown Group, Moneysuperket.com, Saga, The Fulham Shore, Pearson, Young & Co’s Brewery, Signet Jewelers, Mitchells & Butlers

Royal Bank of Scotland Group, Lloyds Banking Group, Big Yellow Group, Close Brothers Group, Grainger, Londonmetric Property, Prudential, Hastings Group

Mediclinic International, Smith & Nephew, Astrazeneca, Genus

Spectris, Ricardo, Kier Group, Intertek Group, Halma, BAE Systems, Rotork, Experian, Smurfit Kappa Group, Equiniti Group, Bunzl, RPC Group, Electrocomponents, Polypipe Group

BT Group


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