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Seeking resilience in tough times

Former City analyst Robin Hardy assesses the resilience of three companies as we head into uncertain waters
June 30, 2022

This week we look at resilience – how well set a business or market is to fend off or limit the impact of consumer spending pressure or even a full blown recession.

Some companies are naturally resilient because of the necessity or indispensable nature of their product, others benefit from shifting market undertows that offset macro changes while others simply work exceptionally hard to make their products more popular, even elevating them to classic or cult status. Necessity offers the best defence, perhaps even assuring growth regardless of the economic climate, shifting trends ultimately run their course but give near-term protection and while sweating a fashion brand can keep up momentum, trends can change on a sixpence. Three somewhat different dynamics here but it does feel that low, staid and steady will win the race, long-term.

Britvic (BVIC) – a leading brand owner and big name distributor in the soft drinks industry, Britvic manages to extract good growth from a very mature industry: soft drinks demand just about tracks GDP. That said, a bias towards at home consumption did mean that the hit from Covid was limited. Strong demand forlo/no sugar drinks, a fight back in the energy drink segment and growth in an exotic market should combine to allow Britvic to post comfortably double-digit EPS growth. Soft drinks feel like a fairly defensive market and here the PE and growth rate look to be out of kilter, potentially leaving some value on the table.

Sage (SGE) – good accounting software is a business staple and with very ‘sticky’ customers, providers enjoy predictability and long-term visibility. Not an industry given over to revolutionary change, but migration to cloud and SaaS models that investors rate more highly than a perpetual licence is rolling ahead at a decent pace. This is a steady, reliable business and while 8-10 per cent growth might be considered low for a software/technology business that growth feels more dependable and the rating is much lower than that given to, primarily US, whizz-bang technology stocks, many of which are yet to turn a profit.

Dr Martens (DOCS) – management has done an excellent job of pushing an iconic, but very British shoe onto the world stage. The home market (now pretty mature) only accounts today for one in six sales with growing penetration in large international markets largely due to DOCS reducing wholesale, third-party sales in favour of a direct-to-customer business via owned stores. Good control of costs, which are essentially locked down fully for FY 2022/3, means little risk here of a profit warning (not so elsewhere in retail) but all fashion faces stiffening headwinds on cost and consumers’ spending power. Internal hard work could still counter market pressures but consensus forecasts do feel a little rich. The best time to buy looks to have recently passed and although the rating appears low there are risks here, not least a large stock overhang.

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