Three British stocks offering all-weather income
A professional investor tells us where he’d put his money. This week: Brendan Gulston, co-manager of the LF Gresham House UK Multi Cap Income Fund.
With the outlook for inflation and interest rates moderating in the UK, many investors and analysts are now questioning whether Britain is really heading for a deep recession.
However, the more relevant question is whether the new economic regime of elevated inflation and higher rates will result in businesses and consumers continuing to tighten their purse strings - given Britons have already cut discretionary spending.
In this environment, only the most resilient companies can deliver consistent income streams. We look at three such businesses available to savvy UK investors at attractive discounts.
Co-bots – not robots
RWS Holdings (LSE: RWS) is a world-leading provider of tech-enabled language translation services for businesses, used by 90 of the world’s top 100 brands. The company has cemented itself as a leader in the B2B translation space, in part due to the scale and capability of its business model which leverages in-house translation specialists, freelancers and cutting-edge software.
While automation might be viewed as a headwind to the translation industry, it forms the cornerstone of RWS’ process. The company’s vast pool of translators leverage RWS’ proprietary machine learning platform to conduct machine translation post-editing (MTPE). MTPE boosts efficiency for translators, increasing workforce productivity and enabling RWS to grow margins and take market share.
Rather than posing a threat, automation is fuelling RWS’ growth and resilience over the long term. With a robust balance sheet, well-covered dividend, and potential for margin growth over the coming years, RWS is a resilient income prospect.
Look for loyalty
Premier Foods (LSE: PFD) is a foods provider with a portfolio of staple brands including Mr Kipling, Bisto and Batchelors. While investors might be quick to dismiss this business given its sensitivity to consumer spending, Premier Food’s compelling transition story showcases its resilience.
Historically, Premier Foods has been over-leveraged, with a debt-to-EBITDA ratio as high as 4x, which stifled its growth prospects. However, new management’s ambitious de-leveraging strategy has more than halved the company’s debt-to-EBITDA ratio, shoring up its balance sheet.
The business has seen an uplift in earnings since, with consumers signalling loyalty to Premier Foods’ market-leading brands despite the squeeze on household incomes. This value centric company has strong pricing power, demonstrated in its ability to offset inflationary pressures.
Data makes the difference
Sabre Insurance (LSE: SBRE) is a leading motor insurer that sells policies through a network of brokers and brands. Unlike competitors such as Direct Line – which offer a range of products across the mass market – Sabre differentiates within the hard-to-insure vehicle categories.
This market segment is difficult to price, given its risks are more complex to quantify than other types of standard cover, where more easily accessible data sets help inform underwriting policies. Sabre has collected over two decades of proprietary data which can be leveraged to enhance the sophistication of its pricing models, giving it an edge in the market.
This competitive advantage has enabled Sabre’s underwriting performance to consistently outperform the competition and should support its resilience over the long term.
Furthermore, despite headwinds across the industry in terms of claims inflation, Sabre has been a first mover in adjusting pricing to the new environment, positioning it for strong earnings growth over the medium term.