Each week, a professional investor tells MoneyWeek where he’d put his money now. This week: Paul Stappard, SGPB Hambros.
Brexit is on investors’ minds ahead of the vote on 23 June. Yet whatever the outcome, we are confident that it will not change the fundamentals of sound investing – which is why we are sticking with these three companies, regardless of the referendum result.
DCC (LSE: DCC) has three main divisions, operating mainly in the UK and Europe. DCC Energy is the largest, generating roughly 75% of operating income, followed by DCC Technology at 20% and DCC Healthcare at 5%. This well-run business has consistently generated significant returns, irrespective of the political backdrop. DCC Energy specialises in the distribution and sale of transport fuel, heating oil and liquefied petroleum gas. It’s a market leader in most core markets and continues to grow via bolt-on acquisitions and disposals.
DCC Technology specialises in marketing and distributing electronic goods, such as mobile handsets and PCs. It is the second-largest operator in the UK and fourth in Europe. Since 2008 it has grown revenues by 17% a year compounded, and return on capital employed has risen from 15% to more than 16% as demand for electronic devices keeps rising. DCC Healthcare has more than doubled its earnings in three years, helped by increasing scale and product diversity. While small, it will be an important growth driver for the group. We see significant upside from here.
Carnival (LSE: CCL) is the world’s largest cruise-line operator, and is ideally placed to benefit from long-term growth in demand for cruises. Across the cruise industry the big operators are finally focusing on maximising ticket yield and on-board yield – prioritising profitability rather than capacity. Comments from Carnival’s management echo this and also highlight the growing success of its fleet and route management initiatives. This focus on profitability, plus growing demand from emerging markets and an ageing global population, means cruise operators – particularly Carnival – are approaching a “sweet spot” for investors.
WPP (LSE: WPP) is the world’s top advertising and marketing agency by revenue. It turned 30 last year and continues to go from strength to strength. It has consistently delivered one of the best total shareholder returns of comparable quality companies. WPP is the dominant player in terms of market segment and geographical positioning. That has helped to grow revenues and profitability both organically and via acquisition. Management has proactively restructured WPP’s global network to focus on and reflect changing trends and new opportunities.
At current valuations, investors are not giving enough credit for the firm’s business model and the management’s solid execution of operational objectives, capital discipline and shareholder focus. We expect 2016 to be another strong year, helped by events such as the European football championship, the Olympics and the American election.