Posted: March 1, 2017 |  AUTHOR: KEN FOX | CONTACT ME

 

*Excludes banks, financial and insurance companies (which also might thrive post Brexit)

What are global investors to think, given the United Kingdom’s decision to leave the European Union and invoke Article 50 of the Lisbon Treaty? Besides the pending Brexit, England has a relatively new Prime Minister, Theresa May, and faces uncertainties with soon to be elections in some key EU members, namely Germany, The Netherlands and France. This blog post identifies 9 British based companies perceived to do well post Brexit. It excludes banks, insurance and financial companies based in the UK, which face unique challenges involving exchange rates, the relationship with the European (Union) Central Bank (ECB) and pending relationship and guidance from England’s central bank, the Bank of England.

The companies cited below represent the opinion of this writer. It is based on preliminary research from multiple sources. It reflects individual company growth plans, new management in place, strategic plans and pending mergers. It also reflects a range of industries and public as well as private large companies. Most are well known.

1. Rolls-Royce Holdings PLC (London, LSE: RR)

This company is a provider of integrated power and propulsion solutions (not autos*). It operates under two divisions: Aerospace, which includes civil and defense businesses, and Land & Sea, which includes power systems, marine and nuclear. The company competes with General Electric for making engines for the Boeing 787 Dreamliner. Its emphasis has been on wide body jets and has missed business to other engine companies for the growing narrow-bodied jet business such as the B737 Max and A320neo.

However, new orders in late 2016 for Rolls Royce Trent engines will help get this company back on its feet again. These include engines for 19 Boeing 787s’ from Norwegian Airlines, 18 A330s-900 neos from Iran Airlines, 12 Airbus A350-1000s from Virgin Atlantic, and for 15 Airbus A330s from China Eastern Airlines. Additionally, Singapore Airlines recently ordered 19 new Boeing 787-10s in February 2017 which will likely utilize Roll Royce Engines.

*Rolls Royce Motor Cars Ltd. is a wholly owned subsidiary of BMW, established in 1998.

2. GlaxoSmithKline (Bentford, NYSE: GSK)


This 6th largest pharmaceutical company in the world had global revenue in 2015 of $23.92 billion. It opened a new global vaccine R&D center in Rockville, Maryland, USA in December 2016. In addition to prescription pharmaceuticals and vaccines, Glaxo sells a number of over-the-counter products such as: Abreva, Aquafresh, Fonase, NicoDerm and Tums.
Glaxo expects to report updates on 20-30 clinical trials over the next two years, and launch a new asthma drug and shingles vaccine later this year. (The Telegraph, February 8, 2017)

3. Rio Tinto PLC (Div. of the Rio Tinto Group) (London, NYSE: RIO)
This is a global mining and metals producing company with sales revenue of $34.8 billion in 2015. Rio Tinto mines and produces aluminum products (bauxite, alumina and aluminum), copper, gold, silver, nickel, diamonds, titanium, borates, iron ore, metal powders, zircon, uranium and coal. It has operations in Australia, North America, Asia, Europe, Africa and South America.

Technology and innovation has been one of Rio Tinto’s strengths. Some examples include using drones to measure stockpiles and assist with many tasks such as maintenance and environmental programs.

4. Reckitt Benckiser Group PLC (Slough, LSE: RB)


RB manufactures and markets household, health and personal care products globally. Some of its well known consumer brands include: Mucinex, Clearasil, Woolite, Lysol, Calgon, Vanish, Scholl foot care products, Stepsils lozenges and Durex condoms. It has been ranked by Forbes as the 51st most innovative European company, with annual sales of $13.6 billion (2015).
The company is in negotiations to acquire U.S based Mead Johnson (Glenview, IL), maker of consumer products such as Enfamil infant formula and Sustagen milk supplement. Mead Johnson had sales of $3.7 billion in 2016.

5. Diageo (London, LSE and NYSE: DGE)
 Diageo is the largest producer of spirits and a major producer of beer. It’s brands include: Johnnie Walker, Crown Royal, J&B, Smirnoff and Ketel vodka, Captain Morgan’s, Bailey’s and Guinness. Among its growth plans:
-The company plans to open a new Guinness brewery in Maryland (USA), where it will make beers for the U.S. market
-Diageo plans to launch a new blended whisky called Roe & Co., which will be produced in a new distillery in Dublin, Ireland.

6. Virgin Group (London, Privately held)
Virgin owns over 200 companies and is headed by CEO Richard Branson. These Virgin companies include: Trains, Atlantic (and other airlines), Holidays, Mobile USA, Mobile France, Media, Money UK, etc. The Virgin Group also includes something unique in business, Virgin Galactic, which tests space ships. Although faced with serious delays, advance tickets sales for Virgin Galactic future flights exceed $89 billion.

Richard Branson says he’s constantly searching for new ways to expand the Virgin brand into” industries that are stuck or broken.”

7. TESCO PLC (Cheshunt, LSE: TSCO)
TESCO is a British grocery and general merchandise retailer. It is the third-largest retailer in the world measured by revenues (after Wal-Mart and Carrefour) and the second-largest measured by profits (after Wal-Mart). TESCO acquired Booker Group PLC for $4.7 billion in January 2017. This acquisition combines the UK’s largest retailer with its largest food wholesaler. Tesco’s CEO, Dave Lewis, who came from Unilever in 2014, announced restarting paying dividends in 2018, after the company suspended payment for the past two years.

8. Vodafone Group PLC (London, NASDAQ: VOD)
The company has successfully restructured and transitioned from one of the world’s largest wireless only telecom firms to a diversified operator offering mobile and mixed line services in most of its developed markets (Morningstar).
Vodafone has made a number of acquisitions in Europe including Kabel Deutschland in Germany, Ono in Spain and Cable & Wireless Worldwide in the UK to provide more key fixed line infrastructure. The company is also increasing its penetration in India with its pending merger with Idea Cellular, which would combine two of the largest wireless carriers in that country. It also performs well in several large emerging markets: South Africa, Turkey and Egypt. Where it doesn’t own operations it has formed strategic partnerships.

9. BAE Systems PLC (London, LSE: BA)
 BAE Systems is a defense, aerospace and security company. It has a Cyber & Intelligence unit, and other divisions which produce combat vehicles, weapons, munitions and naval ships. It assembled the Eurofighter Typhoon T1 working with Eurofighter GmbH. The BAE Systems Maritime division developed the Type 45 Naval Destroyer.

The company has a strong heritage of manufacturing British fighting aircraft. Supermarine, the manufacturer of the Spitfire was a predecessor company of BAE Systems. It was purchased by Vickers-Armstrongs which was merged into the British Aircraft Corporation in 1960. BAE Systems was formed in 1999 by the merger of Marconi Electrical Systems (MES) and British Aerospace.

BAE Systems is a large contractor for the U.S. military. The company has 82,500 employees worldwide (36% work in the U.S.) with annual sales of $22.3 billion in 2015.
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Commentary

The nine companies featured above were chosen for specific reasons, but all for growth opportunities beyond Brexit. People worldwide will continue to get sick and be helped by Glaxo’s pharmaceuticals and vaccines. They will continue to order and enjoy Diageo’s line of alcoholic beverages regardless of economic conditions. They will take care of their bodies and households with products from Reckitt Benckiser, and buy groceries at TESCO. The U.S., probably the UK’s biggest fan and ally, will continue to source intelligence and military vehicles and materials from BAE and jet engines from Rolls Royce Holdings. Vodafone continues to expand through acquisitions and strategic partnerships outside the UK.

China’s goal, to build their own large commercial aircraft to compete against Boeing and Airbus, may also motivate their government to source large aircraft engines from Rolls Royce. This is in case the Chinese government wants to avoid sourcing engines from the U.S. for political or economic reasons. As China, the U.S. and India improve their country’s infrastructures they will need raw materials from companies like Rio Tinto.

The relationship between the U.S. and the UK is strong and everlasting, and the U.S. will continue to support the UK post Brexit.

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©2017, The Global Galaxy blog is produced by The Soundings Group, LLC, Charleston, South Carolina, USA, www.thesoundingsgroup.com. The company is an international business consulting firm, specializing in new market assessments, market entry strategies and marketing guidance. The scope of Global Galaxy is to cover timely international trends, issues and business building ideas. Its purpose is to educate, inform and stimulate thinking for business opportunity analyses.

 

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