by Peter Lees
4. March 2011 23:16
I have recently added GKN to the portfolio of the F&C UK Equity Fund to increase its exposure to ‘late cycle’ potential.
GKN is very interesting for a number of reasons. Its Driveline business is the world’s leading supplier of such equipment to the automotive industry. Automotive output across the board has increased strongly as the global recovery continues. In turn, demand for GKN’s driveline products has increased sharply and capacity constraints are now an increasing issue, which puts GKN in a very nice place. Some twenty years ago 11 or 12 companies would have been competing with GKN in this space but now it’s down to a couple of smaller players. As a result, the auto industry heavyweights are now working increasingly closely with GKN to add new driveline capacity to enable them to increase their output.
This means much greater earnings visibility for GKN in the years to come. In addition, the company also looks to have control over its pension fund deficit, which came down sharply in 2010 and is generating its own cash.
The latest results from advertising group WPP, also bode well for late cycle recovery, with earnings growth greatest in the US and UK markets. We also hold this in the Fund.
