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Dechra Pharmaceuticals & RELX Group

Neville White
By Neville White Head of SRI Policy and Research March 2018
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Dechra Pharmaceuticals & RELX Group

Amity UK: Profits with Principles

The Amity UK Fund was launched 30 years ago in March 1988. At that time, there was only one ethical equity fund in the UK, but 30 years on our suite of seven Amity screened funds for retail and charity continue to deliver long-term ‘Profits with Principles’ for our clients. 

The EdenTree range of Amity Funds hold over 250 different company stocks and debt instruments across the portfolios. As well as having a strong and compelling investment case, each holding must be researched and approved by the SRI team. Here we profile two interesting Amity UK holdings that have been held by Fund Manager Sue Round for some considerable time and which have delivered strongly against our nine positive screens. 

Dechra Pharmaceuticals

Dechra is an international specialist veterinary pharma-ceuticals and related products business, based in the UK. It was founded in 1819, originally as Arnolds & Son, as a prosthetic limb manufacturer. The company first turned its attention to veterinary medicine during the Crimean War (1854-56). In its modern form, Dechra was listed in 2000 after a management buy-out from Lloyds Chemists. The company now has a presence in 50 countries and employs 1,344 people. The global animal healthcare market is worth $36bn.

The company’s global reach in a niche, high-margin area that is growing makes it an attractive long-term investment proposition. Barriers to entry are significant, and Dechra’s focus gives it material advantage. The company’s integrated approach from pipeline to delivery allows it to control costs and maximise margin revenues. 

In 2016/17 revenues across its three businesses grew strongly with North American revenue growth of 93.7% and 7.9% in the EU. International sales other than North America and the EU account for 8.6% of total group sales and are growing steadily as Dechra seeks to penetrate new markets.

Dechra has a reporting year that ends on 30th June. For the full 2016/17 year revenues of £359.3m were reported (28.3% increase over 2015/16). Consolidated underlying operating profit of £81.3m represented a 36.9% increase on the prior year. Underlying EBIT margin increased to 22.6% with EPS growth of 35.1% to 64.33p. The company pays a modest dividend of around 1% which has grown around 120%.

The company has grown strongly since it sought a UK listing in 2000. The share price at launch was 120p and hit 1700p at 30th June 2017. However the stock is up nearly 50% over the past year and is currently trading at over £25 per share.

The company is a strong proxy for our Health & Wellbeing thematic pillar, and scores well across the nine positive screens. The company operates in a highly regulated sector, and operates to high ethical standards and has formalised this into a Code of Business Conduct, translated into nine languages and rolled out across its international facilities. The company has developed a position on Modern Slavery, but the risk from human rights violations is viewed as moderate. Dechra has a strong commitment to health & safety, reports its LTAFR3, and has seen a reducing number of incidents as a result of training.

The company’s environmental footprint is relatively modest, however it generates hazardous chemical waste, and is placing efforts on reducing disposal to landfill. The company reports its Scope I & II emissions, which have grown in absolute terms owing to an acquisition, however carbon intensity expressed as CO2e per £m of sales revenue has decreased. The stock does not contribute materially to the Amity UK portfolio carbon impact. The company has an active community programme, in the main supporting veterinaries and aligned animal causes.

RELX Group

RELX is a global provider of information and data analytics for professional and business customers. The company is present in 180 countries and employs over 30,000 people. Its four market specialisms are scientific, technical & medical; legal; risk & data analytics and lastly, exhibitions.

The company is well diversified and strongly positioned in the high-margin, professional digital information space. Over half of revenues are subscription driven making recurring income an attractive factor. In many of its chosen fields it is either global #1 or #2. Transitioning early from print to digital in the key North American market has led to strong revenue growth: 55% of all sales are generated in North America. Its reach into data analytics has also seen impressive growth and is now the second highest driver of income.

RELX Group has published full year results for 2017 with underlying revenue up 4% and underlying operating profit up by 6%. Reported revenues were £7.3bn in 2017 with adjusted operating profit of £2.2bn. EPS on an adjusted basis (constant currencies) grew 7% to 81p, with ROIC an impressive 13.1%. The company pays an attractive dividend of 2.7% with the full year pay-out increased by 10%. The company has performed well over the long-term and particularly over three, five and 10 years.

The company is a strong proxy for our Education thematic pillar, and scores strongly across the nine positive screens. The company makes a unique contribution to the promotion and dissemination of knowledge to a student and professional clientele. In an age of ‘fake news’ and considerable mistrust, RELX operates to the highest standards of ethical integrity in data collection and evaluation to be a dependable agency for doctors, lawyers and other professionals. The company also makes much of its research expertise available to emerging economies, for instance through ‘Research without Borders’ that pairs expertise with the needs of the African science and medical communities. RELX is behind the ground-breaking SDG Resource Centre, a free resource to advance awareness and understanding of the 17 Sustainable Development Goals. 

Importantly the company is a powerful advocate for the promotion of the rule of law, good governance and access to justice via its working partnership with the UN Development Programme.

The value of an investment can fall as well as rise as a result of market and currency fluctuations, you may not get back the amount originally invested. Past performance should not be seen as a guide to future performance. If you are unsure which investment is most suited to you, the advice of a qualified financial adviser should be sought. EdenTree Investment Management Limited (EdenTree) Reg. No. 2519319. Registered in England at Beaufort House, Brunswick Road, Gloucester, GL1 1JZ, UK. EdenTree is authorised and regulated by the Financial Conduct Authority and is a member of the Investment Association.