Global consumer goods producers, such as Unilever and Reckitt Benckiser, which now prefers to be known as RB, increasingly present investors with a difficult choice. Unlike the drinks producers, they seem little affected by the turndown in emerging markets.
It seems that consumers in China, India and elsewhere will continue to pay a premium for well-known brands, such as RB’s Dettol, Harpic or Strepsils, or Unilever’s Dove soap or Hellman’s spreads. So the shares keep on rising.
These are utterly reliable payers of dividends, too, when some of the big payments elsewhere, such as in mining, are under threat. Obviously, though, the higher the shares go, the less impressive the dividend yield.
I suggested the other day that Unilever was looking a bit toppy, impressive third-quarter figures having been inflated by one-offs. Now along comes RB to shoot out the lights with a set of numbers that are startlingly strong.
To take three standouts: third-quarter revenues from emerging markets were up, before currencies, by 10 per cent, the first double-digit growth in more than two years. RB has the advantage in China of making a quarter of its sales on the internet. The health side, boasting some of the best margins, grew by 14 per cent pretty much across all products.
The portfolio brands reversed a 13 per cent fall halfway to gain 5 per cent — this is a range of often local products that is a small part of the group and the turnaround, achieved by more focused management, is less significant.
In deciphering RB’s statements, one must be a bit of a Kremlinologist. Margins have been described as “moderate to nice” in the past. Today the company is headed for “another year of growth and margin expansion”, which sounds promising. The group is confident enough to raise its revenue expectations for the second time this year, from 4 to 5 per cent to 5 per cent. This may not sound like much, but there are other consumer goods businesses that would be happy enough with this.
The shares rose 156p to £63 and are up a fifth this year. They sell on 26 times earnings. Safe as houses, but more enterprising investors might consider taking profits and finding a better income elsewhere.
Third-quarter revenues £2.2bn up 7%
New revenue target for 2015 5%
MY ADVICE Take profits
WHY RB is one of the most reliable dividend payers in the market, but shares have risen so far that there are better yields available elsewhere
The most significant element of Fidessa’s trading statement is that any plans to launch a product for the fixed-interest market will not get in the way of the next year’s special dividend. This last is a misnomer, anyway; the company makes software for financial firms and the strong cashflow from this, with the disinclination of clients to switch providers, has allowed the payment of about 45p a year for the past decade and means that the shares enjoy a dividend yield of about 4.5 per cent.
They have been under pressure since the summer, when the company warned that while changes to the financial services industry meant greater opportunities to sell its product, they were also leading to mergers and the departure of some customers from the market.
This warning is repeated in the latest update, with the assumption that departures will continue into next year. The shares have enjoyed a high earnings multiple — about 30 when they were trading at about £24 — because of that extra dividend. They rose 89p to £19.49 after the reassurance about next year’s payment, but that multiple has still fallen to about 26.
Special dividend last time 45p
MY ADVICE Hold for income
WHY Shares expensive, but yield is a decent one
One gets the impression that Bunzl is such a dull business that analysts are desperate to latch on to any small variation in performance to give themselves something to write about. The company, which distributes to businesses such throwaway products as plastic cutlery, hairnets and other unnoticeables, has suffered a flattening of underlying revenues over the second and third quarters of this year, and the latest update sent the shares off 46p to £17.99.
It lost two big contracts a year ago in the United States, for understandable reasons. The price of resin is falling, off by 5 per cent, and Bunzl must pass through any fall in costs of the products it distributes.
None of this is exactly catastrophic. Those contract losses will wash out of the numbers, while the effect of the plastic price is negligible. On the positive side, Bunzl’s strategy is to grow by small acquisitions and, if you take these into account, third-quarter revenues were up by 4 per cent. This year looks like being a record one over the past decade for such purchases. The more territories the company operates in, the more opportunities occur, while in the developed markets where it mainly plys its trade prices for these businesses are stable enough.
Given Bunzl’s extraordinary record in the long term, I am inclined to take any weakness in the share price as a buying opportunity. The shares, like any reliable global business, do not come cheap — vide RB and Unilever. They sell on about 20 times this year’s earnings and the yield is only a little above 2 per cent, but still worth it long term.
Rise in revenues in third quarter 4%
MY ADVICE Buy
WHY Long-term record for reliability and growth
And finally . . .
The trading update from Computacenter, the computer services business, reads like a continuation of trends for the past year or so. Britain offers great opportunities, with large contracts on the skyline that would allow it to continue its strong growth rate if they come through in the fourth quarter. Germany is improving; France remains a drag. The low euro is a negative, but, even allowing for this, revenues were up by 4 per cent. The cash continues to pile up, with every prospect of further returns to investors.
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