The low inflation environment driven by structural forces such as deregulation and globalisation con...
The low inflation environment driven by structural forces such as deregulation and globalisation continues to limit the ability of many UK companies to easily raise prices, which has and will constrain profits growth for many.
The bottom up consensus earnings growth estimates for the FTSE All-Share Index are for 14% in 2000 and 12% in 2001.
At FIS, we define growth companies as those we believe will be able to raise earnings substantially in excess of the long-term growth rate of the market over the next five-year period.
We also focus on the stability in the progression of this profit stream, favouring companies that show greater stability.
Based on our bottom up stock picking philosophy, we pay greater attention to the business momentum and longer-term prospects of individual companies rather than analysis based purely on industrial sector themes.
In media, our favoured holding is WPP. It is benefiting from secular growth trends, which will boost and prolong the previously volatile advertising cycle. As the world's largest advertising group it has a size advantage that is evident from strong new business wins and superior growth rates.
Post year 2000 demand for software and service companies has been more sluggish than consensus expectations and a major reason for this is the increased importance of IT strategically, leading to long lead times for some projects.
This has led to considerable polarisation of returns within the sector, a phenomenon we expect to continue as winners and losers constantly emerge.
Sage is one of our favoured holdings in this sector. Our forecasts are for organic sales growth in excess of 21% and profits growth of more than 27% for the next five years, leading us to be more positive than the market consensus on this company.
The company has increased its e-commerce related offerings, through both its existing accounting software and its other operations which offer web design, hosting services and software to small companies.
In support services, Capita, the leading business process outsourcing company has excellent growth prospects. Earnings are based upon a dominant position within the industry where barriers to entry are high and competition remains limited.
Momentum is strong and there have been large upward earnings revisions driven by accelerating outsourcing both in the private and public sectors, and Capita's high success rate in winning contracts.
In telecoms, we like Vodafone Airtouch, with its excellent management focused on shareholder value. We believe the company will exhibit earnings growth in excess of 40% over the next five years as the underlying business momentum is driven by strong growth in subscribers and increased usage.
Ian Peart is the director of pan-European equities at Friends Ivory & Sime
Two global vehicles
'Further plug advice gap'
Must appoint separate CEOs and boards
Advisers do come out well
Will report to Mark Till