Standard Life Investments’ UK smaller companies expert Harry Nimmo was quick to spot the changing tastes in British drinking habits. An early backer of upmarket mixer manufacturer Fever- Tree Drinks, he was attracted to the firm’s focus on provenance. Sourcing all ingredients for its tonics ethically and making a point of not adding any extra sweeteners were deemed big differentiators for the drink maker’s target market of premium alcohol consumers.
It’s a strategy that has paid off as Fever-Tree overtook Britvic in April 2017 as the UK’s most highly- rated soft drinks firm. Despite picking a winner, the smaller companies veteran is not resting on his laurels. Harry has developed the provenance theme further and ventured into the food industry.
“Food provenance is a very important issue as consumers want choice but they also want to know where their food and drink is coming from. Our Fever-Tree holding was one example of this but we’ve moved onto other opportunities such as Hilton Food, which is involved in beef production, and Cranswick which produces pork products. Both of these companies focus on provenance very highly and that’s important for us as we view it as a big growth market.”
Nimmo is not just interested in the food we eat, however, he also focuses on the health of the animals we keep. This is steadily rising up the agenda. His stake in Dechra Pharmaceuticals is a case in point. The firm’s CEO is a former laboratory assistant and van driver from Stockdale who spotted a gap in the market for creating animal equivalents for human pharmaceuticals and developing the dosages and formulations in-house for a veterinary application.
After a series of acquisitions and personnel changes, Dechra entered the pig and poultry market, for which it manufactures antibiotics and vaccines, in 2013. The firm viewed this as this a big growth market in light of the demand coming from emerging middle classes across Asia and South America.
Another holding in the area of animal health is CVS Group, the largest veterinary services provider in the UK which focuses on ‘making pets a priority.’
The group has six main business areas: practice division, diagnostic laboratories, pet crematoria, MiVet Club (a veterinary buying group), Pet Medic Recruitment and Animed Direct (an online pharmacy and retailer). Both Dechra and CVS ticked all the right boxes during Nimmo’s visits to the companies.
“There are three tenets to our thinking when we visit new companies. We like to see growth, visibility and momentum on earnings, and quality.”
He defines earnings momentum as the likelihood that forecasts from analysts will rise over time. And earnings visibility is identified as good surprises in terms of the future progression of earnings.
In quality, he looks for longevity of management. “We want proof that the management has developed a strategy consistently over time. This is about stability, about individuals that have built up the business over the long term for that company.”
Nimmo also has a strong focus on liquidity, ensuring he trades as little as possible, to avoid giving up gains because of liquidity. This means staying put in high conviction ideas.
“We buy what we believe are low risk companies and we trade less often, our holding period is very long, we hold stocks for five years on average, so we run our winners.”
He concludes: “The smaller companies arena is the realm of the stock picker, there’s a wealth of choice, you get exposure to growth potential, and to companies that can export their business model from the UK to the world at large.”
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The opinions expressed are as of October 2017 and are subject to change at any time due to changes in market or economic conditions. This material is for informational purposes only. This should not be relied upon as a forecast, research or investment advice. The value of an investment can fall as well as rise and is not guaranteed – an investor may get back less than he/she put in. Past performance is not a guide to future performance.
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