Fundamental’s elephants are galloping fast
It’s been a big week of announcements from many of our portfolio holdings and some our large cap companies are putting their smaller peers to shame, delivering stupendous growth.
As the world’s largest online payments provider with the fastest growing mobile platform, Fundamental Ultimate Stocks Portfolio holding PayPal Holdings (US: PYPL) was bound to benefit. The fast-growing US giant added 37.3 million active accounts in the three months to December 2019, increasing its total customer number to 305 million. If PayPal keeps up this pace of growth, it won’t be long before it processes over $1trn of payments in a single year.
The rising number of AirPod wearers is reflected in the fact that Apple (US: AAPL) reported a 36% increase in revenues from its wearable devices business in the final quarter of 2019. Meanwhile, continued demand for the higher priced iPhone 11 drove sales higher at the company’s largest division with iPhone revenue up 8% to $56bn in the all-important Christmas quarter. The only disappointment in a record quarter for Apple was the services division, where revenue growth of 17% was below expectations and down from the 18% growth reported in the three months to September 2019. It’s incredible to think that 17% organic growth from a 40 year old company valued at US$1.4 trillion could be considered as being below expectations.
The data revolution to cloud hosted subscription-based services is already being reflected in the financial performance from long-term portfolio holding Microsoft (US:MSFT). In its fiscal second quarter to December 2019, the company reported a 14% increase in revenues to $36.9bn, driven by demand for cloud services across multiple product suites. Azure, the company’s cloud services and data centre platform reported a 64% increase in sales with cloud revenues now contributing a little over a third of total group sales.
It wasn’t all good news from our portfolio companies with results from UK listed Unilever (LON:ULVR) and Diageo (LON:DGE) hampered by the changing tastes of the modern consumer.
Diageo’s interim results reflect the trends of the wider alcohol market: consumers are drinking more posh booze, but less overall. Volumes were flat on the previous year, but net sales rose 4% to £7.2bn.
Changing tastes and price hikes were also an issue for Unilever where more than half of the 2.9% increase in revenues reported in 2019 was driven by higher prices. Like Diageo, demand for Unilever’s products is being upset by changing tastes of the modern consumer: the everyday cuppa is out, herbal tea is in. Thus, PG Tips and Lipton have joined the growing list of out-of-fashion brands which Unilever has put under “strategic review”.
Focus on the future stretches beyond the product portfolio at both companies. Diageo and Unilever recently topped the FTSE 100 responsibility index compiled by media group Tortoise, which highlights the main ESG (environmental, social and governance) investing principles.
You can read a full analysis of both Diageo and Unilever in the Ultimate Stocks Portfolio section of the Investor’s Champion website. Fundamental clients have complimentary access to the premium content on the site.
Contact Chris or Stephen at Fundamental Asset Management on 01923 713890 for information about our general investment portfolios, investing in some great global companies.