Cube UK Report (3 March 2021) – Eyeing up the FTSE

Cube UK Report (3 March 2021) – Eyeing up the FTSE

Morning folks,

Let’s catch up on today’s stories:

  • Nichols
  • Norcros

Not covered: IPF, HSX.

In macro, the FTSE has been firm in recent days and is currently up around the 6675 mark.

I’ve been toying with the idea of getting my long FTSE trades back on, but haven’t quite managed to do it yet.

At these levels, I still see plenty of value in the UK, but it’s not an “urgent” trade.

Here are the top components of the index with their market caps and rolling 1-year P/E ratios. I like this as a quick exercise, to give me a big-picture view of what I’m buying into:

Share Market cap (£bn) P/E Roll 1
Unilever 155 17.6
BHP Group 120 12.5
Royal Dutch Shell 114 11.4
Rio Tinto 105 9.4
Astrazeneca 90 18.2
HSBC 88 12.3
Diageo 67 23.3
BP 61 11.9
GlaxoSmithKline 61 11.9
British American Tobacco 58 7.6
London Stock Exchange 45 31.7
Reckitt Benckiser 43 19.7

Of this list, I already own British American Tobacco (BATS), and am interested to buy Unilever (ULVR).

The others I am not too interested in, individually. But as a group, are they good value? How are their prospects?

An improvement in mix

If you’ve been watching this index for a while, you’ll be able to see that its concentration in resources, banking and pharmaceuticals has reduced.

Royal Dutch Shell is no longer in the lead, and HSBC has fallen away from the 2nd place that it used to hold. Apart from HSBC, there are no other banks in the top 10 components.

Instead we have Unilever out in front, leading the big resource plays.

And so the importance of “quality” has increased. There has been outperformance by both Unilever and Reckitt Benckiser, and London Stock Exchange has seen a tremendous increase in valuation.

Don’t get me wrong – the FTSE has by no means become a high-quality index. But I think you can reasonably argue that its quality has been improved by the diminution of the sectors which previously held sway.

Additionally, the multiples attached to its largest “quality” companies are not obviously outrageous: the P/E multiples of Unilever and Reckitt are both sub-20, as are the pharmaceutical companies.

Diageo is a little higher, and London Stock Exchange is priced highly, but perhaps that is fair enough?

Overall, I’m not in a huge rush to get my long FTSE trades back on, but I’m tempted to start them up again. Decent value on offer here, I think.

Breaking: the rate of UK corporation tax will increase to 25% from 2023, according to an announcement just made by Rishi Sunak. The full rate won’t be paid on profits below £250k.

Did I speak too soon about buying into the FTSE? I assumed that the bill for the last 12 months would be paid by borrowing and printing, rather than taxing.

Compared to a 19% rate, this is a reduction in the value of UK profits by nearly 7.5% (comparing 75p of after-tax profits to 81p).

The profits of the largest companies will be taxed overseas. For domestic-oriented companies, however, there is no escaping this new rate.

I’m afraid this is a severe blow for private industry.



  • Stock data should display here.
Market cap £398 million
RNS Preliminary Result
Writer disclosure No position.

2020 was a rough year for Nichols, owner of the Vimto brand.

Revenue is down 19%, and adjusted operating profit down 64%. Statutory operating profit down 80%.

These numbers look worse than the downbeat consensus forecasts – which makes sense as Nichols shares are lower by 4% today.

The bright spots are:

  • an increase in UK soft drink market share for Vimto (but these are unusual market conditions, so do they really help us understand what could happen in future years?).
  • revenue growth in Africa and around the world, where Covid and lockdowns had less impact.
  • good cash flow performance (free cash flow £17.6 million).
  • confident enough to pay an 8.8p final dividend.

Like so many other drinks businesses, the “Out of Home” segment is crucial. 2020 shows what happens when this segment is taken away.

Outlook – no official guidance, only a belief that the company will achieve its long-term ambitions.

Management – new CEO as of January 1st, and the Nichols family has signed a “Relationship Agreement” which ensures it is represented at Board level “whilst also ensuring that the Group conducts its business independently at all times”.

If you are not aware, this is a family business, though the relationship with the Nichols family is clearly going to evolve over time. Three individuals from this family currently own 44% of the company (including the non-Executive Chairman and an NED).

My view

It’s another clean set of accounts. The only red mark is a £5.1 million impairment for the Feel Good unit.

This has been on my watchlist for a long time. Maybe it’s in good buying territory here, predicting a rebound in out-of-home consumption over the next 1-2 years?



  • Stock data should display here.
Market cap £205 million
RNS Trading Update
Writer disclosure No position.

Norcros company has a year-end at the end of March. This is an update for the four months to early February 2021.

The strong recovery we experienced in the second quarter has improved markedly with revenue in the four months from the half year to 7 February 2021, 117% of the prior year on a like for like constant currency basis. 

There’s been a great progression through the year, as the company recovered from the Covid crisis. South Africa is now doing even better than the UK at constant FX:

Net debt reduces to just £5.7 million. I wonder if they can keep it down at this level, or even move to net cash?

There is a dividend planned for shareholders, “subject to the continued strong momentum in trading performance”. A nice vote of confidence seeing as there hasn’t been a dividend declared since November 2019 (normally, there would have been dividends declared in June 2020 and November 2020).


Referencing its “leading market positions, established brands, broad distribution channels”, etc., the company says:

“…it is now expected that reported underlying profit for the year to 31 March 2021 will be no less than £28m on a post-IFRS 16 basis and ahead of current market expectations of circa £25m.”

My view

Historically this has always looked quite cheap, held back by concerns over its balance sheet, pension and South African concerns.

The share price has now doubled since the March 2020 low. You can argue that it’s still cheap at these levels, considering that the balance sheet has been cleaned up and the company is firing on all cylinders, with potential for more growth.

The brands include Triton showers, Merlyn shower trays, and others I’m less familiar with (e.g. Vado taps, Croydex toilets and showers).

I’m inclined to believe that the odds are favourable for shareholders at this level. Worth researching in more detail.


Calling it a day there. Back soon.





Wordpress (2)
  • comment-avatar

    “I’m afraid this is a severe blow for private industry” – did you not realise that this was said by a politician Graham? The chances of this actually coming to pass with a government just one year away from a General Election is, I would suggest, somewhere between negligible and non-existent.

    Fast forward two years and look out for the “as a result of our superb management of the economy we are delighted to announce that Corporation Tax will only have to rise to………” announcement.

  • comment-avatar

    Sorry about my formatting above – I’ve forgotten how to make paragraphs without hitting the Enter key???

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