11 December 2020

Company Meetings Winter 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.


HSBC


Price £4.04
52 week high-low £6.02 – £2.81
Net Yield 0%
Hist/Pros PER NA – 20
Equity Market Cap (M) £80,726

Financials
Ewen Stevenson (CFO) and Neil Sankoff (Head of Equity Investor Relations)

Aside from provisions, HSBC is taking hits from low interest rates, lower customer activity and from lower wealth product sales. Asian product sales have been hampered by fewer mainland Chinese visiting Hong Kong to buy insurance.

Ewen said that Anglo-Saxon banks were relative newcomers to low interest rates. European banks have had time to realise that the remedies were reduced costs and moving to fee income, rather than net interest income by building wealth management sales.  

Cost reduction is part of HSBC’s solution and costs were 7% down at the Q2; driven, in part, by less travel.  Some of those savings will persist into a post COVID-19 world. More than half was internal travel and that won't be allowed again in the future, but external travel will be allowed again. More desk sharing has the potential to cut their $3 billion property cost, which is 10% of their total cost base.  

HSBC are aiming for 2.5 days in office vs 2.5 days at home on average.  Perhaps they will sublet half of Canary Wharf?  The problems of home working are technological failure, not training juniors properly, mental health issues and an inability to judge performance so well. Ewen said that job mobility had fallen as well and they have not been able to replicate the operational efficiency of having 15 programmers in a room working around a white board and table to solve IT issues.

 

Persimmon


Price £26.96
52 week high-low £33.28 – £13.67
Net Yield 3.94%
Hist/Pros PER 13 – 12
Equity Market Cap (M) £8,630

Consumer Discretionary
Dave Jenkinson (CEO), and Mike Killoran (Finance Director)

Persimmon is a leading UK house builder that aims to produce quality housing at affordable price points. Since the Help to Buy scheme announcement in 2013, Persimmon has been a beneficiary given that c.50% of their homes are sold to first time buyers; strong demand allowed volumes to rise and profitability to expand. With the scheme extended to 2023, for first time buyers only, Persimmon should have a relatively longer period of government support than some peers. This support could prove even more valuable in a cyclically sensitive sector as the UK economy seeks recovery from the pandemic. 

Unlike other house builders, Persimmon took steps recently to broaden its vertical integration strategy to ensure critical material supply. By way of example, their brick manufacturing factory in South Yorkshire is capable of producing eighty million bricks per year. This production volume covers two thirds of Persimmon’s annual brick build requirement. Whilst ownership of a brick production site might seem uninspiring, it provides a competitive advantage by ensuring Persimmon can complete the core structure of each home it builds. Building material supply disruption was an early worry in the pandemic. We think Persimmon’s internal supply capabilities may have helped it push forward with construction whilst peers took a more cautious stance. This would partly explain their relative market share gains earlier this year. 

Dave Jenkinson passes the CEO post to Dean Finch, an experienced leader in the transport sector, but a relative outsider for the house building sector. It will be interesting to observe whether Persimmon’s well-trodden strategy endures or changes are afoot. 

 

Microsoft


Price $215.23
52 week high-low $232.86 – $132.52
Net Yield 0.98%
Hist/Pros PER 34 – 32
Equity Market Cap (M) $1,618,475

Information Technology
Kyle Vikström (Investor Relations Director)

Microsoft is in the minority of businesses which have financially benefitted from the COVID-19 pandemic - FY20 Q3 revenue and operating profit grew by +12% and +25% respectively. Lock-down restrictions have forced white-collar workers to work from home and pushed businesses to digitise work flows to remain operational. This has increased demand for a range of Microsoft products/services, particularly its cloud platform Azure.

Microsoft note that this enhanced cloud demand isn’t different from that of the past, but marks an acceleration in what was already a structural shift from on-premise to cloud computing.  Nonetheless, the company is keen to stress that they still see this shift in its “early innings”. They define the transition to the cloud as a two staged process: 1) migration, which involves packaging data so that it is suitable for cloud use and; 2) innovation, where this data can be used in more advanced analytics such as artificial intelligence. Microsoft continue to not provide any exact commentary around where their overall customer base sits within these phases, but have said that around 20% of its customers are at the innovation stage in some shape or form. They view the consumption curve within the innovation stage as being like a ‘hockey stick’ and believe that many of their customers are just at the beginning of it.  

Microsoft are however finding it challenging to convince new customers to begin their transition to the cloud in the midst of a pandemic. Additionally, revenue from LinkedIn has declined due to the collapse in the jobs’ market and Windows operating system sales have fallen as enterprises rein in hardware spend. Although Microsoft has benefitted from the pandemic so far, the business cannot insulate itself from the wider macroeconomic environment forever. 

COMMUNICATION SERVICES
BT Group 

CONSUMER DISCRETIONARY
Ocado Group
Persimmon
Whitbread
Wingstop

CONSUMER STAPLES
Diageo

FINANCIALS
Euronext
Prudential
HSBC
Lloyds Banking Group
Barclays
Burford Capital

HEALTH CARE
Genus,
Dechra Pharmaceuticals
Cooper Companies

INDUSTRIALS
Spirax-Sarco Engineering
BAE Sytems
Bunzl, RELX
Ricardo
Ceres Power Holdings
Alpha Financial Markets Consulting
Diploma

INFORMATION TECHNOLOGY
Microsoft Corporation
NVIDIA Corporation
alesforce.com
Visa

MATERIALS
Learning Technologies Group
Microsoft Corporation
Halma

MATERIALS
Victrex
BASF
Croda International
Hill & Smith Holdings
Mondi

UTILITIES
SEGRO
Shaftsbury
Derwent London


John Royden, Head of Research
James Ayling, CFA Research Analyst
Michael Bray, CFA Research Analyst

Managing your wealth

Managing your wealth

Understanding Finance

Helping clients understand what we do is key to building relationships. To explain some of the industry jargon that creeps into our world, we’ve pulled together a section of our site to help.


Also in this issue

Senior Investment Manager, Leeds

COVID-19 continues to be at the forefront of all of our lives and it has undoubtedly been at the core of our investment decision making over the last quarter.

Tesco needs little introduction - it’s one of the UK’s top retailers in groceries and merchandise and has a market capitalisation of £20bn.

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