The twists and turns of the Brexit saga, concerns about slowing global growth and US-China trade tensions have all contributed to an uncertain macroeconomic backdrop for the UK.
Despite the wider economic challenges though, at an individual company level there are still businesses that are trading strongly and continuing to grow their earnings.
In many cases these are companies that are benefiting from long-term structural trends powered by technological advances, social change and efforts to help people around the world lead healthier, safer lives.
While there will always be macroeconomic challenges to navigate, well-managed companies that are leaders in business areas benefiting from these underlying trends should be able to continue to achieve robust growth.
These businesses, which can be described as ‘secular growth’ companies, can be found across the range of UK indices, from the FTSE 100 to AIM.
Robotic automation
The trends are diverse in nature, but probably the most obvious is technological change, which can be broken down into a number of sub-themes.
One of these is increasing robotic automation in industries ranging from car making to food and drink production.
Looking at North America alone, a record number of robots, 35,880 units, were delivered to companies in 2018, up 7 per cent on the previous year, according to the Robotic Industries Association.
One company reaping the benefits is Renishaw, which is a global leader in precision measurement technology.
The company’s instruments help manufacturers ensure industrial robots move with pinpoint accuracy and that the dimensions of components they fit are precisely correct.
Renishaw has an excellent reputation for quality and reliability and is favoured by many aerospace and automotive companies who want the very best measuring equipment to avoid extremely costly interruptions to their manufacturing processes.
Around 95 per cent of sales are outside the UK, the company has net cash on the balance sheet and it invests for the long term to develop innovative new products and protect its market position.
Digitalisation of industry
The increasing use of sophisticated technology to monitor and control industrial processes has been termed the digitalisation of industry.
One beneficiary is Aveva, which is a global leader in engineering and industrial software used to design and operate complex facilities like oil rigs and power stations.
These plants produce a huge amount of data measuring things likes temperatures and flow rates. Aveva provides the software to capture and process it all, allowing operators to make any adjustments needed to ensure safety and efficiency.
Aveva merged with Schneider Electric just over a year ago and the company now operates in more than 40 countries.
Increasing regulation
Increasing regulation in countries around the world is another trend that presents opportunities. In emerging economies, for example, new food safety and hygiene legislation is driving growth in demand for pest control services.
Rentokil Initial stands to benefit as one of the world’s largest pest control businesses.
In many cases companies will prefer to outsource pest control to a specialist and, importantly, businesses will use Rentokil Initial’s services and brand name as evidence of their commitment to hygiene standards.
Rentokil Initial has a strong track record as a consolidator, taking over local operators and incorporating them into the business, stripping out costs and cross-selling services, which is helping to drive growth.
Pest control is a high margin, ‘sticky’ business that has tended to remain robust through the business cycle. Rentokil Initial also looks undervalued compared to some equivalent businesses in the US.
Halma is another business benefiting from increasing safety standards.
The group operates companies around the world making health, safety and environmental protection equipment. Products include fire detectors for commercial premises, pipe corrosion sensors, lift safety systems and safety equipment to prevent accidents with industrial machinery.
Demand is based on regulatory requirements, which means it tends to remain strong throughout the economic cycle, while equipment also needs to be regularly replaced to ensure it meets safety standards. All this should provide stable, growing revenues and mean the company is less reliant on a positive economic backdrop.
Halma also achieves growth through acquisition, using its steady cashflows to buy more businesses focused on making safety, environmental and health-related products.
Increased healthcare spending
Global spending on healthcare is continuing to increase significantly, with Deloitte projecting a rise of more than 5 per cent per year from £5.9 trillion in 2017 to £7.6 trillion in 2022.
As companies invest heavily in developing new medicines, one company poised to benefit is Abcam, which is a leading producer and distributor of antibodies, enzymes and proteins that it sells to around 600,000 research scientists in 140 countries. Only around 5 per cent of its business is in the UK.
One area where the company’s products are used is research into genetic sequencing, which is an increasing area of focus for big pharmaceutical companies looking for the next biotech breakthrough
Abcam has a market-leading online catalogue of more than 118,000 products and strong relationships with laboratories around the world that help it to cross sell new research tools.
While Abcam and the other companies cannot afford to ignore changing macroeconomic conditions, the long-term trends supporting their growth provide a significant tailwind. In an uncertain world, that gives them an important advantage.
Richard Hallett is manager of the Marlborough UK Multi-Cap Growth Fund
