By Ken Wotton and Brendan Gulston, co-managers of the LF Gresham House UK Multi Cap Income Fund
For millions of households across the UK, 2022 could pose a real cost of living catastrophe. A cocktail of macroeconomic headwinds, including soaring inflation, rising taxes, interest rate hikes and steeper energy bills, threatens to squeeze household budgets in the year to come.
However, a number of exciting British businesses across the market cap spectrum are fighting back by providing consumers with astute money-saving solutions. To investors, these businesses with enduring appeal represent attractive structural growth opportunities with strong cash generation, generous dividend policies and long-term income growth potential.
Bargain utility bundles
Telecom Plus is the UK’s only multi-utility provider, supplying residents and businesses with gas, insurance, electricity, landline and broadband connectivity – all in one bill. While other utility suppliers incur central business costs for providing only one utility, Telecom Plus’ costs per utility are lower on average. This affords the business a structural advantage, which Telecom Plus can pass onto customers, guaranteeing them the cheapest deal on the market.
The business’ route to market is also compelling. It draws on a network of partners that sell directly to prospective customers, thus removing the need for advertising. Its partners are everyday people tasked with raising awareness of the Telecom brand, Utility Warehouse, in community settings among family and friends. This is highly effective in terms of conversion, as people know and trust the partners. In addition, this strategy promotes a positive social impact, providing people in need of a second paycheque or those with difficulties finding a job, such as returning ex-offenders, with a material ancillary source of income.
The company is also supported by a favourable competitive environment. The recent surge in energy prices caused many structurally flawed competitors to go bust, while the industry regulator was forced to limit the number of new entrants to the sector. Last October alone, Telecom Plus won the same number of customers as it did in the previous year – an exciting growth story.
Wiser energy ways
Smart Metering Systems (SMS) installs and operates smart meters and carbon reduction assets throughout the UK. The business serves the industrial, commercial and public sectors, and has particular expertise in servicing the domestic market.
The company’s smart meter offering is hugely beneficial to domestic consumers, who can save on energy bills by gaining a better understanding of their energy usage – and wastage – in real time. This enables them to form better energy habits and reduce costs – offering crucial relief to millions of UK households facing soaring energy bills.
From an investment perspective, SMS is a high-quality business with recurring revenue streams secured over the long term. The company plays an essential role in the UK government-backed deployment of energy efficient smart meters, which feeds into the broader theme of environmental sustainability and the country’s net-zero goals. With the government’s plan to install smart meters in every home by 2024, the company has a lengthy runway for growth.
Moneysupermarket.com is a well-known UK mid cap that offers a leading price comparison service across a wide variety of products, including car and travel insurance, loans, home services and mortgages. In 2020 alone, the company helped users save an estimated £2bn on household bills. As such, the company expects increased site traffic throughout 2022 and beyond amid tighter consumer spending circumstances.
The group has already proven its resilience through a particularly turbulent market environment. Despite pandemic restrictions having dealt a blow to the company’s travel-related business, its high margin business model and balance sheet strength enabled it to withstand pandemic setbacks and remain highly cash generative.
We are also confident in the company’s leadership, culture, and strategy, having gained good insight into these key characteristics through our close relationship with the group’s former chairman, an adviser to Gresham House for many years. Investors in Moneysupermarket.com can therefore expect attractive upside as travel returns to normal and UK consumers flock to the site in search of cheap deals.
B&M is one the UK’s fastest-growing discount retailers, offering consumers cheap prices on a wide range of everyday goods, from home accessories to DIY essentials and games. While some view high street retail as something of a challenged space, B&M is well positioned for continued long-term growth.
The company is one of only a handful of retailers currently expanding its portfolio of physical stores within the UK, which lends the business bargaining power when negotiating new leases. B&M applies an efficient cookie-cutter approach to rolling out new stores, which is based on a detailed and easily replicable blueprint, allowing it to scale rapidly.
Drawing on our network, we referenced the B&M CEO Simon Arora and built strong conviction in his capabilities and data-driven approach. We always look to invest in companies with talented and ambitious leadership teams, as these are pivotal to guiding businesses through periods of market turbulence. Indeed, B&M enjoyed considerable success during the global financial crisis, winning scores of new customers and retaining them in the following years – a strategy being replicated by the company during the Covid-19 pandemic.