Today we will be sharing three companies that have one common trait which is that they are ‘old’ businesses, with the youngest incorporated 96 years ago. Age alone doesn’t indicate a sound investment, but it does demonstrate that the company has been able to weather multiple economic cycles and emerge on the other side. This will be especially important in 2023 as we enter a more uncertain environment for economies and subsequently companies.

Founded in 1867, BWX manufactures and engineers nuclear components and fuels. The company’s main operations centre on marine nuclear solutions for the US government, however, it is expanding into commercial applications, including nuclear medicine and commercial nuclear power.
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It recently won a contract with GE-Hitachi to engineer its BWRX-300 small modular reactor (SMR) pressure vessel. SMR technology is akin to a smaller nuclear power plant, suitable for remote locations or industry applications as it can be factory assembled and transported.

Sentiment and demand for nuclear solutions are strong, particularly in light of the Russian-Ukraine war, highlighting the importance of energy security. This is in addition to governments legislating net-zero emissions targets, for which nuclear will play a crucial role as a reliable source of baseload power.

During the month, the company released its third-quarter results. Revenue increased by 5%, with 22% growth in commercial operations. Free cash flow also increased by 24% during the quarter. Management noted that labour availability is constraining growth. The business has responded by streamlining the recruitment process, improving employee referral programs and providing more site-level resources.

In 2023 the company expects stronger growth with an acceleration over the medium term. BWX trades on an earnings multiple of 20 and a dividend yield of 1.5%. Given the aforementioned demand profile, we expect it to grow in its valuation.

Schlumberger was founded by Conrad and Marcel Schlumberger in 1926 in Paris − then a part of the German empire. The two brothers pioneered electrical coring, which uses electrical measurements to identify geological formations. Before this, oil exploration relied on samples or cuttings from boreholes which were highly unreliable and frequently missed oil zones.

Today, Schlumberger is a global leader in technology and services for the oil and gas sectors. Its largest division by profit is well construction, followed by digital and integration, reservoir performance and production systems.

Against the backdrop of Europe’s energy crises and a decade of underinvestment in oil and gas, there is a strong demand to increase investment and rebalance markets, create supply redundancies, and rebuild spare capacity — for which Schlumberger is a direct beneficiary.

The company is also making forward-facing investments via its new energy division, which includes carbon, sequestration and geothermal technologies to reduce and safely store carbon emissions.

At its investor day this month, management expects annual revenue growth to be 15% out to 2025, with upside should supply remain limited. It also surprised the market by increasing its quarterly dividend payment by 43%.

We are attracted to Schlumberger’s long-term growth profile as well as its clear capital allocation framework, which focuses on shareholder returns. It trades on an earnings multiple of 16 when looking one year out, which underappreciates the growth outlook.
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Incorporated in 1906, Hillenbrand is a US-based industrial company that provides advanced equipment used to manufacture a range of products, including packaging, consumer goods, food and chemicals. The business also owns a legacy funeral casket business called Batesville.

Hillenbrand reported fourth-quarter results during the month, with revenue increasing by 7% in constant currency and net income up by 9%. The company has been able to offset inflationary pressures by pushing through price increases, demonstrating a level of pricing power. It’s also improved processes to maintain margins.

Despite the uncertain economic outlook, management noted a record backlog of orders for equipment in both the moulding technology and advanced process divisions.

Hillenbrand has recently completed three acquisitions to bolster its recycling and food solutions portfolio. The business will host an investor day in December, where we expect to hear more information regarding its growth strategy.

Hillenbrand is not a particularly exciting company. However, it sells essential equipment to a diversified customer base across several geographies, making its earnings reliable and defensive. The business is also exploring strategic options to create shareholder value, including the sale of Batesville.

Trading on an earnings multiple of 11, the market has priced it as a no-growth company. This leaves potential upside should it continue to improve margins and integrate recent acquisitions.

Disclaimer: BWX Technologies (NYSE: BWXT), Schlumberger (NYSE: SLB) and Hillenbrand (NYSE: HI) are currently held in the TAMIM Fund: Global High Conviction portfolio.