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By Duncan Burdan, 11 February 2013
At SPI we identify industries with long-term structural growth and focus our portfolios on these areas. Our global equity portfolios are typically dominated by consumer-related companies with dominant market shares. Through a combination of superior products, ?global reach and an ever-larger addressable market over time, these companies can grow earnings and dividends faster than the rest of the market for sustained periods.
The chart on the right reflects the compound growth in dividends per share for some of our core positions. Despite the financial crisis, these companies were still able to grow dividends by an average of 13% compounded over the last five years. Emerging markets’ underlying GDP growth will drive the global economy for the foreseeable future, and many of our companies are well positioned in these markets.
Unilever’s product portfolio has fared well relative to its peers in the fast-growing consumer staples arena, with emerging markets contributing 56% of revenues, growing at 11.5% per annum against the developed markets’ 0.8%. With world-leading distribution reach in the key burgeoning economies and portfolio-enhancing deals in the pipeline, Unilever is one of our preferred consumer-staples plays. While the rating at 15.5x two-year forward PE seems expensive, it trades on a par with its peers. Add in projected DPS compound growth of 6.3% over the next three years on a current dividend yield of 3.6%, and we believe this business offers long-term attractiveness.
Diageo is uniquely positioned to capture growth from both the entry level and premium end of its heavily diversified beverage portfolio. Steady growth in the USA underpins a successful emerging markets strategy, exemplified by the Guinness success story in Nigeria, now a larger market
for the stout than Ireland. Diageo’s ultra-premium portfolio of whiskies and vodkas aligns perfectly with the theme of wealth creation, premiumisation and westernisation of tastes in the Asia Pacific region, particularly India.
Google enjoys the luxury of double-digit growth in developed markets, with a staggering 65% of search volume in the US alone. Continued innovation and mobile search are the key value drivers for the medium term and Google will seek to replicate its success in emerging markets over the coming years. Our view is that Google remains relatively underpenetrated in many international markets. Google continues to offer value at a two-year forward PE of only 13.1x, with double-digit growth in both revenues and earnings. Google will have net cash of $75bn by the end of December 2014, allowing them to make strategic acquisitions over time.