10 February 2016

Company Meetings Q4 2015

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.

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.


PRICE: £14.59
52 WEEK HIGH-LOW: £16.96 - £13.95
HIST/PROS PER: 12.5 - 12.8

Alistair Phillips-Davies, CEO

SSE (Scottish and Southern Energy) is an electricity and gas company that generates, transmits, distributes and supplies electricity across the UK and Ireland. You will surely have seen their orang-utan advert recently or perhaps even the BBC series Power to the People that goes behind the scenes at SSE?

During our recent meeting with SSE’s CEO, Alistair Phillips-Davies, we discussed what has been a sound first six months of the financial year for the company and the all important dividend. SSE’s Wholesale division is the most cyclical part of the company and comprises of energy generation, gas production and gas storage assets. Thanks to a wet and windy last few months, SSE’s renewable energy capacity was particularly productive over the period. 

The Networks division is heavily regulated in its activities of distributing and transmitting electricity and gas. This division delivered a steady return as expected. The Retail division continues to lose customers to smaller providers that are currently able to offer lower prices thanks to the shorter duration of their energy price hedges, but the rate of decline is slowing. The shares currently trade at a discount to the wider utilities sector and with a yield over 6% it is fair to say that the market is yet to be convinced that SSE will be able to keep their promise of increasing the dividend annually at least by inflation; on current guidance, earnings cover for the pay out will be around 1.2x this year. I rate SSE’s management team highly and note that they have maintained a relatively strong balance sheet at the same time as continuing to invest for growth. 

John Royden is a beneficial owner of SSE.



PRICE: £63.53
52 WEEK HIGH-LOW: £64.50 - £48.95
HIST/PROS PER: 24.7 - 26.4

Investor Relations team

Reckitt Benckiser (Reckitt) is a global branded goods company specialising in household, health and personal care. The Company’s key brands include Durex, Gaviscon, Nurofen, Scholl, Strepsils, Airborne, MegaRed, Move Free, Bang, Clearasil, Dettol, Finish, Harpic, Lysol, Mortein, Veet, Air Wick, Calgon, Vanish, Woolite and French’s.

Our meeting with Reckitt’s investor relations team focused on the Health division which has been the star performer over 2015 and subject to much discussion regarding the potential for M&A activity. Consumer brands in the healthcare space, such as Nurofen and Gaviscon, are highly sought after assets at present. These brands generate high margins and offer exciting growth opportunities via selling into growing middle classes across Emerging Markets. Another relevant consideration is the fact that pricing on consumer products has the ability to vary with inflation, unlike the patented drugs that are the mainstay of the global pharmaceutical sector. As the name suggests, consumer health products fall between the expertise of the consumer goods sector on the one hand and pharmaceuticals on the other. Reckitt competes with the likes of Johnson & Johnson and the recently formed GSK/Novartis consumer healthcare division 
in this rapidly developing sector. As the only consumer goods company with a meaningful presence in this space, Reckitt argue that they have an inherent advantage in their ability to place product thanks to their undoubted experience in related consumer areas. My sense is that the pharmaceuticals sector is well aware of this and would love to get their hands on Reckitt’s health division. I would not be surprised to see an offer made for the division in future. If such a bid were to be successful, a significant multiple would need to be paid. 



PRICE: £5.26
52 WEEK HIGH-LOW: £6.99 - £5.13
HIST/PROS PER: 20.0 - 18.5

Roger White, CEO and Stuart Lorimar, Finance Director

AG Barr has been in the drinks manufacturing business ever since it was founded in 1875 by Robert Barr. The company operates in three main segments; carbonates, still drinks, and water. Most notable of their products is Irn Bru whose bright orange bottles fly off the shelves throughout Scotland, where the group generates 40% of its business. Almost all of the balance comes from the remainder of the UK.

AG Barr has been through an overdue systems and processes upgrade over the last two years; equated by management to having builders in your house. Now through the other side, the company stands to benefit from a variety of cost savings and efficiencies.

60% of the products that AG Barr sell are what is known as ‘drink now’, i.e. a lemonade from a corner shop on a hot day. As alluded to, sales can be adversely affected by poor weather, as was the case this year. Another side-effect of ‘drink now’ is that a significant proportion of the retailers are independent and therefore rely on your distribution network for delivery. 

There is an ongoing trend away from high sugar drinks as consumers become more health conscious and AG Barr are ahead of the curve. Low-to-mid sugar products now account for 42% of the portfolio and that number should continue to rise. For example, AG Barr recently acquired the rights to distribute Snapple, an extremely popular juice brand in the US, to the UK market and immediately are looking to develop both low and no sugar versions. 

With the capital expenditure due to normalise over the next few years post-restructuring, AG Barr have a strong portfolio containing both established and newer high-growth brands.


CONSUMER GOODSBurberry, AG BARR, Reckitt Benckiser, Cranswick, Britvic, PZ Cussons

CONSUMER SERVICESTesco, Saga, ITV, AA, Pearson, Marston’s

FINANCIALSStandard Life, Standard Chartered, Assura, Lloyds Banking Group

INDUSTRIALSRicardo, IMI, Avon Rubber, Diploma, Severfield, Smiths Group




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