DCC’s name makes it sound like the publisher behind Batman, Superman and Wonder Woman but that’s DC Comics. As a group it is not in the business of light entertainment, although it is a company whose performance has given its shareholders plenty to smile about.
DCC was founded in Dublin in 1976 by Jim Flavin, a venture capitalist who by the end of the following decade had turned it into Ireland’s leading private equity investor. During the next decade, it consolidated around its main industrial investments, listing on the stock market in 1994.
It operates four divisions, all sales, marketing and supply businesses at their core, and its growth has propelled it into the FTSE 100 index. The headquarters are still in Dublin and it operates in 17 countries, employing more than 12,000 people. In the year to the end of March, it made pre-tax profits of £316.4 million from revenues of £14.3 billion.
Although it is listed, DCC has the cultural flavour of a private equity business.
Donal Murphy, its chief executive, has a super-sharp grasp of the business’s financials and reels off details about its return on capital employed and cashflow generation, both of which it’s pretty good at, by the way.
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It is also seriously acquisitive — yet another private equity trait — and has spent £3 billion on 260 takeovers during its 24 years as a listed company. It made another yesterday, buying Jam, a Canadian supplier of professional audio equipment, musical instruments and consumer electronics products, for an enterprise value, debt and equity combined, of $170 million. For a business that made revenues of $323 million in the 12 months to the end of April, on the face of it, that appears inexpensive.
Jam will slot into DCC’s technology division, which is the smallest of its units by operating profits, and should complement a portfolio that specialises in selling smart TVs to mobile phones.
The other three divisions are DCC LPG, which sells gas and electricity to households and businesses; DCC retail and oil, which supplies and sells transport fuels and heating oils; and DCC healthcare, a supplier of pharmaceutical products and medical devices.
DCC said in a trading update covering the six months to the end of September that all its businesses were recording healthy growth in operating profits, apart from DCC LPG, which was performing only in line with its targets, having faced material increases in the cost of wholesale gas and electricity in the first half. Ultimately, though, because it trades in the market daily, it will be able to pass on its additional costs to its customers over time.
It’s hard to see a flaw in DCC. Buying growth through acquisitions perhaps? It doesn’t seem so; according to its annual results, a third of its growth in operating profits (of 8.6 per cent, assuming constant currencies) was organic and two thirds through acquisitions.
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It must be full of debt, surely? Well, no. Net debt at the end of March stood at £542.7 million. It has a policy of keeping the ratio of its net debt to profits before tax and other items at between 1.8 and 1.9 times, or if it rises above it, not for long.
DCC also successfully raised more than £600 million through a placing of just over 8.9 million of its shares at £68 each yesterday, the proceeds of which it plans to use for acquisitions. It has firepower.
Just one thing, then: valuation. DCC shares, off 310p to £70 on the placing yesterday, trade at 23.8 times earnings for a yield of 1.75 per cent. The yield’s not stellar but the shares are a buy.
ADVICE Buy
WHY Well managed, acquisitive, growing business that shows no sign whatsoever of slowing down
Halma
When management teams talk about trading being in line with expectations, it’s tempting to assume that the targets were modest. Not so with Halma.
In line for this FTSE 100 company means healthy increases in revenues, profits and cash generation, with a couple of little bolt-on acquisitions thrown in for good measure. That growth is also on the back of last year’s 15th consecutive year of record revenues and profits.
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Halma was founded in 1894 as a tea business in Ceylon, now Sri Lanka, switching to the rubber industry before becoming a holding company that oversees diverse areas, including companies making sensors for fire alarms and smoke detectors. It listed in 1972 and has since December been a constituent of the FTSE 100 index with a valuation of nearly £5.5 billion, annual revenues of just over £1 billion and pre-tax profits of £171.9 million.
The biggest part of Halma, accounting for 35 per cent of revenues, is infrastructure safety, which includes systems that keep fires at bay as well as detect them, and sensors in lifts that prevent the doors shutting on limbs. The second largest division, at 26 per cent of revenues, is medical, producing surgical instruments, diagnostics and imaging equipment, mainly in eye care, and it serves the healthcare sector, private and the NHS.
There’s the environmental and analysis division, including on industrial processes to improve water quality and flows, followed by process safety, which makes pressure valves and sensors for industry.
Halma’s main markets are Europe, Asia and the US, where it is benefiting from the construction boom. It said yesterday in a trading update covering the six months since the start of April that trading was good but grew strongly in the US.
What to make of it? The long-term structural growth in its main activities, essentially safety and health for construction and industry, is evident and attractive, as is its consistent ability to exploit it.
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It shares, up 36p to £14.53, have been stellar, rising 160 per cent over the past five years and 40 per cent in the past two. They trade at a premium of 35.7 times last year’s earnings for a yield of only 1 per cent.
ADVICE Hold long term
WHY Quality growth business whose share price is enviable