Conglomerates are supposed to be deeply unfashionable among investors.
Yet one such beast has, almost silently, crept into the FTSE-100 and, as a consequence, now forms a part of the long-term savings of millions of Britons.
DCC, based in Dublin, was founded in 1976, floated on the stock market in 1994, and moved its primary stock market listing to London in 2013.
Now valued at £6.2bn, it employs 11,000 people in 17 countries, in four distinct divisions. DCC LPG sells liquid petroleum gas, an activity in which it is market leader in Norway and the Netherlands and number two in Britain, France and Ireland.
DCC Retail & Oil sells transport fuel, heating oil and runs petrol stations.
DCC Healthcare makes and distributes health and beauty products, including body butters for The Body Shop.
And DCC Technology sells technology products and services.
The first two divisions – which until last year were part of a single energy division – account for just under three-quarters of operating profits which, in the latest financial year to the end of March, came in at £383.4mn, up 11% on the previous year.
Not only do millions of Britons indirectly have a stake in this business, it touches the lives of millions of Britons on a daily basis as it is the leading distributor of healthcare products to GP surgeries.
While DCC’s four divisions may appear to have little in common, there is a unifying theme, which is that – in the company’s words – “we are an integral and established part of the value chain in our chosen sectors… the products and services we supply are used every day by millions of consumers and businesses, either directly or indirectly”.
Today it announced two acquisitions very much in keeping with that theme. It is buying New York-based Stampede, a distributor of audio-visual products and Kondor, a Dorset-based distributor of mobile phone and tablet cases, headphones and portable speakers.
News of the deal sent shares of DCC, which have risen by 18% since the beginning of 2017, up by more than 3.5%.
Davy, the Dublin-based stockbroker, called the deals “very material” for DCC Technology and noted that they will increase the division’s earnings by nearly a third.
The two acquisitions are merely the latest in a string of deals done by DCC which, in the last financial year, spent £670m.
Its biggest deal to date came when, in November 2015, it bought the bottled gas business Butagaz – a name that will be familiar to anyone who has ever been on a camping holiday in France – from Shell for £338mn.
Donal Murphy, the chief executive, recently explained: “Our strategy is to grow our geographic presence, to build greater scale in the markets that we’re in and to move into adjacent areas.”
So why don’t we hear more about this company? Partly because, with its spread of disparate activities, it is a difficult business for the City to get its arms around.
It sits in the support services sector, alongside the likes of Rentokil, Babcock and the AA, with whom it has very little in common.
Perhaps its closest peer in the sector is Bunzl, another big distributor of everyday products. It may also be because of DCC’s roots. It is one of a string of Irish companies that, earlier in this decade, chose to move their primary listing from Dublin to London.
Others include the building materials giant CRH, food company Greencore, builders merchants Grafton Group and healthcare services group UDG Healthcare. CRH, like DCC, is a FTSE-100 constituent. The other three are in the FTSE Mid-250.
Yet it has built up a loyal following among those investors who have stuck with it over time.
Die-hard supporters compare its business model with that of Warren Buffett’s Berkshire Hathaway: £1,000 invested on the day Mr Murphy’s predecessor, Tommy Breen, became chief executive in May 2008 – just as the financial crisis was taking hold, and nowhere more so than in Ireland – would have been worth £5,369 nine years later when he announced he was stepping down.
The latest financial year also marked the 24th consecutive year in which DCC has raised its dividend to shareholders.
That solid track record means the shares are not cheap. They trade at more than 20 times this year’s expected earnings and 23 times last year’s earnings.
By comparison, the FTSE-100 currently trades at just 13 times last year’s earnings.
And there may be potholes ahead. This is a company that is committed to carrying on growing through acquisitions and some investors fret that it may lack the management capacity to carry on identifying, buying and integrating targets.
It is also a business whose geographic footprint is changing. Only two years ago, Britain accounted for more than half of DCC’s earnings, but now it is continental Europe, while the US is becoming increasingly important.
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That too may create challenges for management and particularly because most future acquisitions are expected to be in the US and Europe.
For now, though, this is a business that appears to be ticking over nicely.
Source: Sky