12 March 2020

Company Meetings Spring 2020

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


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

BP


Price £3.14
52 week high-low £5.63 – £2.23
Net Yield 10.70%
Hist/Pros PER 31.53 – 126.31
Equity Market Cap (M) £62,439

Oil and gas
Daniel Morris  IR Director

Following the arrival of the new CEO Bernard Looney, BP announced a revised strategy with a greater emphasis on sustainability and a new lower carbon emissions target. The new goals set an aim for net zero carbon emissions in operations and oil and gas production, including scope three emissions, on an absolute basis by 2050.  

A company’s carbon emissions are classified as either scope one, two or three. Scope one refers to direct emissions from production. Scope two refers to indirect emissions from energy purchased by the company. Scope three refers to all the indirect emissions within the value chain of production, including the emissions from the end products' use.  Scope one and two only account for c.10% of BP’s emissions.

The question becomes, how can an oil major reduce its scope three emissions without reducing volumes?  Scope one and two can be reduced with offsetting, but scope three will require a more extensive approach.  Additionally, as scope three emissions for BP will encompass scope one emissions for their suppliers or consumers, some collaboration will likely be required.

The new targets have pitched BP ahead of its peers but 2050 is a long way off. Whilst appropriate solutions will be needed in the long term, I wonder how much motivation there will be in the near term. Until BP outline concrete measurable goals at more realistic time intervals, I’m maintaining a healthy dose of scepticism. Despite the upheaval that Covid-19 has brought to markets and the oil and gas sector particularly, at the first quarter results, BP restated their plans and said that they will provide answers on how they plan to achieve their targets in September.

 

Croda


Price £52.08
52 week high-low £54.15 – £38.14
Net Yield 1.74%
Hist/Pros PER 30.02 – 28.92
Equity Market Cap (M) £6,676

Basic materials
Jez Maiden, Group Finance Director & Nick Commandeur, Corporate Development Director

Croda International is a speciality chemicals company founded in 1925 by George Crowe and Henry Dawe who focused on extracting lanolin, a natural protective grease present in sheep wool, to make use of its many valuable chemical properties. Today Croda develop, manufacture and market high quality ingredients and technologies that form the basis of many key products in areas such as skincare and medicine. The business is split into four operating segments: Personal Care, Life Sciences, Performance Technologies and Industrial Chemicals. What really sets Croda apart is that c. 60% of Croda’s raw materials are non-petrochemical (oil) based, whereas peers typically rely heavily on oil based raw materials. This gives Croda a differentiated competitive advantage, especially now, as consumers increasingly want to assess what’s in a product. 

Having met Jez Maiden at a relatively early stage of this pandemic I investigated how Croda was being impacted and responding to the Coronavirus challenge. Clearly, the regional impact was more severe in China relative to the US and Europe. However, as China is an important wool grease producer for the business, it was encouraging to hear that capacity had improved towards 80% of normal.

Meanwhile, on a divisional basis, Performance Technologies continued to face a challenged automotive backdrop, whereas Personal Care and Life Sciences had held up relatively well as, I suspect, customers brought forward purchasing decisions in anticipation of more stringent lockdowns. Clearly, ahead, Croda may face a lumpier order book as customers work down inventories but their divisional balance between defensive and cyclical sectors could help Croda weather the current storm. 

 

Vodafone


Price £1.34
52 week high-low £1.69 – £0.93
Net Yield 5.56%
Hist/Pros PER N/A – 19.72
Equity Market Cap (M) £36,267

Telecommunications
Simon Hill – Senior IR Manager

Vodafone has been undergoing a period of simplification and geographical consolidation. Over the last year Vodafone sold its stake in Egypt to Saudi Telecom and withdrew from Australia via a merger with TPG. They confirmed that their portfolio is now positioned as they wish, with just the European and the Sub-Saharan Africa divisions. Within Europe Vodafone expanded its presence in Germany with the purchase of the cable company Unitymedia from Liberty Global, making Germany the largest division within the group. The structure of German cable TV is a little different than the rest of Europe; Unitymedia benefit from the Nebenkostenprivileg law in which landlords are able to add cable subscriptions to a tenant’s rent. The contract is between the landlord and the cable company and tenants are unable to opt out of the service. Unitymedia serves about two thirds of its homes in multi-dwelling units and tenants pay between €5-7 per month as part of their rental package to receive a basic television service with little incentive to switch provider. This equates to around 11m locked in customers. 

Since Vodafone’s purchase of Unitymedia there have been questions raised about whether this constitutes anti-competitive behaviour. There is now a move in Germany to allow tenants to individually break from these contracts and if this goes through, Vodafone could lose around 30% of profits from Germany. This will not happen all at once but Vodafone’s new asset could shrink over a number of years. Vodafone are convinced this change in law will not get passed. It would result in increased costs for providers, which would be passed on to consumers as higher prices, and regulators will want to avoid this. 

BASIC MATERIALS
BHP Group
Croda International
Givaudan

CONSUMER GOODS
Japan Tobacco
Associated British Foods
Burberry Group
Carlsberg
Diageo
Energiser Holdings
Fevertree Drinks
Imperial Brands
Reckitt Benckiser Group
Unilever
 

CONSUMER SERVICES
Compass Group
Ocado
Intercontinental Hotels Group
WM Morrison Supermarkets
RELX
Sainsbury (J)
Trainline
Tesco

FINANCIALS
British Land Co
Burford Capital
Derwent London
LondonMetric Property
HSBC Holdings
RSA Insurance Group

HEALTH CARE
Astrazeneca
Coloplast-B
Cooper Cos
Dechra Pharmaceuticals
GlaxoSmithKline
Intuitive Surgical
Novo NordiskAstrazeneca
Smith & Nephew

INDUSTRIALS
CRH
Experian
Intertek Group
SGS, DS Smith, Travis PerkinsBP
DS Smith
Travis Perkins

OIL AND GAS
BP
Ceres Power Holdings
 

TECHNOLOGY
Facebook

TELECOMMUNICATIONS
BT Group
Vodafone Group

UTILITIES
Pennon Group
Severn Trent


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