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3 shares with history on their side

We look at three companies that are still going strong after extraordinary beginnings and what we can learn from them.

Important information - This article isn’t personal advice. If you’re not sure whether an investment is right for you please seek advice. If you choose to invest the value of your investment will rise and fall, so you could get back less than you put in.

Pay attention to the stock market long enough and you’ll see that history matters. Economic trends all too often recur. Some companies make the same mistakes, others get it right, over and over again.

Pretty much every listed business has a section somewhere on their website titled ‘Our story’ or ‘Our history’ and they usually tell a similar tale. Founder sets up the company a long time ago, a few deals over the years, founder retires, names change, more deals.

Sometimes, though, the history is more interesting and points to a company that’s still thriving because of its heritage. This heritage is some especially good decisions from long ago that have been carried through over years to build something extraordinarily valuable.

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Here are three examples of companies with history on their side. One of them, Next, celebrates its 60th anniversary this year, two of them have common DNA and all three feature in our HL Select fund portfolios.

This article will look at how these companies leveraged early decisions to grow into the successes they are now, but it isn’t personal advice and past performance isn’t a guide to the future. Investments can fall as well as rise in value, so you could get back less than you invest. If you’re not sure if an investment’s right for you, ask for financial advice.

Experian plc

Both Experian and Next are linked to Great Universal Stores (GUS). GUS was the creation of the Wolfson family and they, with Littlewoods, ended up dominating the post-war mail-order retail sector.

GUS slowly split itself up over many years. The businesses that emerged included Argos, Burberry and Experian. Argos tried to modernise the catalogue shopping proposition. Experian was different, though.

Catalogue retailing involved supplying goods on credit to agents. The agents then showed the catalogues to friends, neighbours and relatives who might place orders and pay in small weekly instalments.

Judging who might not be able to pay back their account balances was critical. So, GUS developed a credit bureau for gathering data of its own. It co-operated with banks, sharing the data on customers and creating a holistic view of credit worthiness, as well as profiles of where marketers and lenders should be focusing their efforts.

GUS merged their UK credit bureau with a US lookalike called Experian in 1996 and demerged the enlarged group onto the UK stock market in 2006.

The need to better understand credit risk led to GUS creating a business that today sits at the heart of the commercial data economy. It provides banks, marketers, and governments with the data they need to make effective decisions.

Experian is now valued at close to £30bn and has more than doubled its revenues since it first listed. That’s helped it become one of the top quartile FTSE 100 performers over that time, although past performance isn’t a guide to the future.

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Next plc

The second company didn’t come out of a Wolfson-backed business, but instead a Wolfson came to it.

Some of us might remember men’s fashion tailors, Hepworths, which first opened its doors in 1864. A century later, George Davies arrived and set about transforming Hepworths into a more fashionable thing called Next.

It’s fair to say Davies got a little carried away, and soon Next stores of one sort or another were everywhere and Next had more debt than it could realistically handle.

But before he left, Davies executed a financial and strategic masterstroke. Acquiring catalogue retailer, Grattan, Davies launched the Next Directory.

In 1990, Next appointed Lord Wolfson as chairman. A few years later, a young Simon Wolfson arrived as a store trainee – quickly rising through the ranks and eventually becoming the youngest ever FTSE 100 chief executive at just 33.

There were people at the time who muttered about favouritism. Not for long, though.

Baron Wolfson of Apsley Guise as he is now, is the longest serving CEO in FTSE 100 history, still there more than 20 years later. Next’s share price, which at one point was only pennies when collapse seemed possible, is now over £80.

Why? Because George Davies’ masterstroke into catalogues gave Next the back end of a web business. And this let the Directory become an online business much faster than rivals.

Now, most of Next’s profits come from their digital division. For years Next’s overall stewardship has been outstanding, consistently allocating capital where it can best advantage its shareholders.

Without the vision of George Davies and the stewardship of generations of Wolfsons, Hepworths’ fate could have been very different.

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Bill Gates stepped down from day-to-day control of Microsoft over twenty years ago. In his last year as CEO, Microsoft generated almost $23bn in revenue and $10.9bn in operating income.

Ten years later, the company reported revenues of $62bn and operating income of $24bn. Mr Gates might have been mature when he retired, Microsoft clearly wasn’t!

How has such growth been possible? Deal-making has played a part, with acquisitions from LinkedIn to OpenAI and most recently, the $68.7bn purchase of games maker Activision Blizzard.

Microsoft can afford to deal in these astonishingly large chips because of its history. Bill Gates’ inspiration led to the birth of Windows, an almost universal operating system for personal computers. So many machines now run on Windows that its revenues far exceed its continuing development costs.

To sell another copy, all that needs to happen is a download. No discs, boxes, nothing physical whatsoever. As a result, Windows is one of the most consistent cash-cow businesses that we might ever see.

Alongside this, Microsoft built Office, now the de facto monopoly provider of core software across almost every business in the western world and beyond.

This has created a durability and visibility of cash flows that gives Microsoft the luxury of being able to think far ahead and be ready for the future, long before it gets there.

Of course, they can get it wrong. But with analysts predicting free cash flow rising to between $90-100bn over the next year, they can do something about mistakes without necessarily breaking a sweat. The market expects a lot though so any mistakes will be sorely punished.

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What can investors learn from history?

Each of these businesses looks to be in a stronger position than its rivals, not least because each had an extraordinary genesis years ago that still seems to be helping far down the line.

Investors who identify the next crop of businesses that are laying the foundations for sustained success could reap extraordinary rewards.

Of course, what sustained success looks like in the future is uncertain and using history to determine this is unwise. History doesn’t account for structural changes that are relevant to today’s world, and it doesn’t factor in unpredictable outlier events.

That’s one of the greatest challenges for me and the HL Select team – identifying those businesses that will be able to leverage their position for long-term growth in years to come.

Leave it to the experts – HL Select funds

Funds are a great way to take the hard work out of picking and monitoring shares.

Investing in funds isn’t right for everyone. You should only invest if the fund’s objectives are aligned with your own, and there’s a specific need for the type of investment being made. Investors should understand the specific risks of a fund before they invest, and make sure any new investment forms part of a diversified portfolio.

HL Select is a group of three funds focused on a small number of shares with long-term growth potential.

Steve Clayton created the HL Select fund range and is Head of Equity Funds at Hargreaves Lansdown.

The HL Select funds are run by our sister company Hargreaves Lansdown Fund Managers Ltd.

Want your investments protected from tax?

You can shelter your investments from tax in an ISA, so you can invest without paying UK income and capital gains tax.

If you open an ISA before the end of this tax year on 5 April, you can add up to £20,000 which will be free from UK income tax and capital gains tax.

A Stocks and Shares ISA lets you invest for the long term across a wide range of investments.

Tax rules for ISAs can change and their benefits depend on your circumstances.

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Written by
Steve Clayton
Head of Equity Funds

Steve is the Head of our HL Select fund range, using his wealth of experience to craft the overall strategy for the funds. He also provides insightful analysis to clients from a fund manager's perspective, playing a pivotal role in letting clients peek behind the curtain.

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Article history
Published: 12th February 2024