Cube Midcap Report (24 July 2020) – Unpopular Britvic directors hang on

Cube Midcap Report (24 July 2020) – Unpopular Britvic directors hang on

Good morning!

There is no live-streaming video today – but I’ll be back again next week. If you missed any of my recent clips, do check out the YouTube channel.

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You may have noticed that the content has been ramping up around here, in the last few days!

In macro today, there are tit-for-tat diplomatic actions between China and the United States, and markets are worried. The FTSE is back down at around 6150.

In mid-caps today, I’m interested in:

  • Britvic (BVIC)
  • Pearson (PSON)
  • IMI (IMI)
  • Ferguson (FERG)

If there is time after checking these, I’ll try to catch up on ones that I missed yesterday. Cheers!



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Market cap £2.9 billion
RNS Statement re AGM voting
Writer disclosure Long BVIC.

I discussed this drinks group one only two days ago, but it’s time for another look after a juicy RNS.

It relates to the January AGM results. Included within these results:

  • 13% of votes went against the remuneration report
  • 6% of votes went against chairman John Daly.
  • 26% of votes went against NED William Eccleshare
  • 21% of votes went against NED Ian McHoul
  • 15% of votes went against the Board’s authority to allot shares.
  • 8% of votes went against the authority to issue shares for acquisition/investment purposes.
  • 12% of votes went against the authority general meetings with 14 days’ notice.

This is a lot of dissent. In particular, the two NEDs are living dangerously!

Today’s RNS defends them:

The Board and Company are aware of the expanded focus on the number and nature of board commitments held by individual directors following the publication last year of the updated UK Corporate Governance Code, and that a number of institutional investors and proxy advisers have developed specific guidelines and policy positions with regard to this. 

This has been a topic since investors felt like their Directors were distracted by too many appointments. One high-profile case Patisserie Holdings – the business collapsed under the weight of borrowings which had been hidden from the public and even from the Chairman and major shareholder Luke Johnson. His 30-odd directorships at the time were thought to have contributed to the oversight.

Anyway, the RNS continues:

The Board is confident that both William Eccleshare and Ian McHoul discharge their roles as non-executive directors effectively, and, in the case of Ian, Senior Independent Director and Chair of the Audit Committee, notwithstanding their other board commitments. The Board has concluded that they are both active and effective independent non-executive directors on Britvic’s Board, and they each have sufficient capacity to meet their respective commitments to the Company, both in respect of their day to day obligations to the Company and at times of increased demand.

Britvic pledges to monitor the performance of these individuals, to engage with “relevant shareholders”, to talk to all investors about it, and to provide more details in the next Annual Report.

Checking their biographies, I note that Mr. Eccleshare is Worldwide CEO of Clear Channel Outdoor and a director of a non-profit theatre in Covent Garden.

Restricting myself only to people named William Eccleshare born in October 1955, I find the following current appointments at Companies House:

  • Donmark Warehouse Projects
  • Thirty Club of London (whose principal activity is “to organise monthly dinners for members”)
  • Britvic
  • Clear Channel Holdings, Clear Channel Overseas, Clear Channel International
  • Centaur Media Plc (market cap £35 million, ticker CAU)

He is busy, perhaps too busy?

As for Mr. McHoul, restricting myself to gentlemen born in January 1960, I find these current appointments:

  • Non-Executive Chairman at Vitec (VTC) (market cap c. £300 million)
  • Bellway (BWY)
  • Young & Co’s Brewery (YNGA)
  • Britvic

My view

While Mr. McHoul is also very busy, I think his collection of non-Executive appointments are less concerning, compared to having Executive appointments.

Unlike Mr. Eccleshare, he is not also the CEO of a large global company!

In general, I don’t like company CEOs to also maintain a collection of NED appointments. I simply don’t understand how they are able to focus on so many different challenges at once!



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Market cap £4.1 billion
RNS Half-year Report
Writer disclosure No position.

A nasty H1 for this educational group, formerly of Financial Times and The Economist fame.

H1 revenue is down 17%, “largely due to Covid-19”.

As noted in the April trading statement, the closure of testing centres and schools has been a major blow, and is only partially offset by the growth in online learning sales.

Q1 revenue was down by only 5%, so the Q2 performance must have been much worse.

We get an adjusted operating loss of £23 million (H1 last year: profit of £144 million).

Pearson says that Covid-19 was responsible for a hit to profitability of some £140 million. And on top of that, there were various expected headwinds in the form of inflation and so on.

The statutory result benefited from gains on the disposal of Penguin, but of course that’s a one-time event:


Hoping to see recovery for the rest of this year with the benefit of more online learning, pent-up demand at test centres (e.g. England language tests for UK Visas), language centres re-opening, etc.

Might hit targets:

At this stage, it remains difficult to predict the ultimate disruptive impact of the COVID-19 pandemic on Pearson’s performance for the full year. However, the second quarter performed in line with our expectations and, while risks remain, particularly around enrolments in the back to school period and local lockdowns impacting schools reopenings, based on our current assessment of these trends we are on track to deliver adjusted operating profit broadly consistent with market expectations

I can see an EBIT forecast of £353 million for the current year, rising to £442 million next year.

Net debt is £982 million, including £662 million of leases. Not excessive by any means.

Dividend is maintained, which makes sense given the balance sheet and the likelihood that the company’s profitability will bounce back.

CEO appointment – a new CEO is being sought, as the incumbent is retireing. “The process is well advanced.”

My view

There’s not much to complain about here. It might be at the cheaper end of the spectrum, and looks reasonably safe, but I struggle to get enthused!



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Market cap £2.95 billion
RNS Interim Results
Writer disclosure No position.

This engineering business has benefited from the demand for ventilators and has been busy cutting costs.

The result is that H1 revenue is only down by 5% and operating profit is up 3% (adjusted numbers, but the statutory numbers are nearly as good).

The operating margin is a very reasonable 14%.

The interim dividend has been cut in half.

News on the dividend front is mixed. The company is reversing the decision not to pay the 2019 final divi. But it’s cutting future dividends:

We will also reset our dividend for 2020 to a level that enables IMI to more effectively deliver on its long-term growth ambitions.

If you’re happy to invest for growth rather than income, you’ll probably be happy with that decision – and the IMI share price is up today, suggesting a big thumbs up from investors.

Net debt is £438 million, which appears modest vs. profitability. Net debt to adjusted EBITDA is given as 1.2x (a low multiple).


The company is feeling upbeat:

Our markets continue to be volatile which makes future forecasts challenging.  However, based on current market conditions, and importantly no material changes in the second half of 2020 as a result of Coronavirus, we now expect full year 2020 adjusted earnings per share to be between 65p and 70p.

Adjusted EPS last year was 73.2p. So based on current conditions, IMI is not expecting the EPS hit to be worse than 11%.

Let’s drill into the outlook at each division a little bit:

IMI Precision Engineering – expecting “continued market weakness”. Organic sales and profits to fall 10% this year.

IMI Critical Engineering – the order book suggests organic revenue will fall 5%-10% this year, flat margins.

IMI Hydronic Engineering (water-based heating and cooling systems for buildings) – H2 organic revenues to fall 5%-10%.

My view

Engineering isn’t my preferred sector. I do think it’s worth noting that this engineering group is not having such a terrible crisis – one of the sectors which might not be hurt too badly, perhaps?



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Market cap £15.8 billion
RNS Trading Update
Writer disclosure No position.

Plumbing and heating products are still popular, and Ferguson shares are up compared to where they finished 2019.

All customer facing locations at Ferguson are back now, with all the necessary social distancing and other measures. Customers have also been going online.

As far as trading goes, the US looks to be almost back to normal. The UK arm (which will be spun off soon) has been doing terribly, while Canada is somewhere in the middle:

Ferguson does say that recent revenue trends in the UK have been “more encouraging” as lockdown measures have eased.

Net debt to adjusted EBITDA is said to be less than 1x.

Outlook – “well positioned to deliver consistent outperformance”, in the CEO’s words.

My view – I’m very pleasantly surprised by the US picture, which you’ll see from the table above is responsible for the vast majority of revenues here. Excellent stuff.


That will do it for today, cheers!




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