The business
Fenner is the world's biggest maker of industrial conveyor belts. These are used by mining, power and construction companies. The business has thrived on the back of strong global demand for coal and iron ore. North America and Australia are its key markets. Through its conveyor belt division, Fenner Dunlop, the company also provides customers with servicing, maintenance and diagnostic services.
The Advanced Engineered Products (AEP) division is focused on niche products that solve its customers' problems. These include high integrity seals for oil and gas companies, textile components for medical implants, precision products for office equipment and hoses for diesel engines.
The history
Joseph Henry Fenner set up the company in 1861. Based in Hull, he began selling leather products, such as hoses and belts. After Joseph's death in 1886 the business was taken over by his two sons. The firm grew fast and by the early 20th century it had developed a thriving export business.
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During the 1930s, Fenner capitalised on the move to rubber V-belts for power transmission. But it wasn't until the 1950s that it entered the conveyor belt market. Continuing along its path of growth, it spent the next 30 years diversifying into other businesses while building scale in conveyor belting.
During the last decade Fenner has been transformed. It became the world leader in heavyweight conveyor belting after buying Unipoly Enerka in 2001. The acquisition gave it the famous Dunlop brand and a strong position with leading mining and industrial firms.
Under the leadership of Mark Abrahams, Fenner diversified away from the cyclical conveyor belt market into high growth, value added, niche businesses. In conveyor belting, it has invested in new manufacturing plants, enhancing its competitive position.
It has also bought conveyor belt service companies to grow its share of lucrative servicing and maintenance work. Smart business decisions and a commodities boom have seen profits soar. During the last ten years, operating profits have increased from £16.6m to £91.4m.
The chief executive
Nicholas Hobson has been CEO since March 2011. An engineer by background, he has worked for Fenner for over 20 years. During that time he successfully ran Fenner's Fluid Power business before it was sold. More recently, he has been head of the group's AEP business. He was paid £407,000 in 2011.
Why you should buy the shares
One word: growth. Fenner is well placed to exploit many global growth trends. The conveyor belt business should benefit from strong demand for coal and iron ore. Buoyant energy markets are boosting its seals business, while ageing populations support the medical devices market. Rising emissions standards also play to the strengths of Fenner's diesel hose business.
On top of that, Fenner's businesses have strong competitive advantages. Its conveyor belts offer customers low operating costs. Many of its niche products are great at solving specific customer problems. They are also very difficult to copy.
Fenner's shares are not at bargain-basement levels. They don't deserve to be. With strong end markets, many of its investments have yet to pay off fully. Its AEP division also makes the company less exposed to economic downturns. City analysts expect profits to grow by 16% this year and 10% next year. The company is only paying out 30% of its profits in dividends, but strong cash generation gives scope for this to increase. For those prepared to take a long-term view, the shares look well worth tucking away.
The numbers
Stockmarket code: FENR
Share price: 455p
Market cap: £880m
Net assets (Aug 2011): £301.5m
Net debt (Aug 2011): £101.8m
P/e (Current year estimate): 13.9x
Yield (prospective): 2.0%
What the analysts say
Buy: 13
Hold: 1
Sell: 1
Average price target: 486p
Director Shareholding
M Abrahams: 690,485
N Hobson: 214,677
R Perry: 567,000
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