Three boring companies that investors should find interesting

A perception that high-yield bonds are (relatively) high risk may lead some investors to view them as one of the more ‘interesting’ parts of the fixed-income market. If that’s why you’re reading this article, we apologise. There are plenty of interesting companies in the high-yield market; this is not about them.

Instead, our focus here is on three companies in unglamorous industries – windscreen repair, meter reading and desktop virtualization – that simply produce nice, predictable cashflows. They may seem ‘boring’. But by collecting their coupons and reinvesting their yields, we have found the returns we can generate are anything but dull.

Techem

Germany built a huge number of apartment blocks in the post-war period in which the provision of heat and electricity was centralised. As time went on, the government realised unit-level metering was needed to charge individual households for their power usage and so incentivise them to reduce consumption.

Techem is not a gas or electricity company. It just does the metering. But by installing its meters on radiators, water pipes and other appliances, it has built a business generating annual revenue of more than €1 billion¹. The installation of smart meters, which dispensed with the need to pay meter readers to visit apartments, has steadily enhanced its margins.

What we find interesting about this business is that when Macquarie sold it in 2018, its debt-to-cash earnings (Ebitda) stood at 7.5x². When it was sold again towards the end of 2024, that had fallen to 5.7x³. This reflects a broader theme we are seeing across the high-yield market: companies have responded to higher borrowing costs by deleveraging.

In return for lending to a business with falling debt and some of the most predictable cashflows in the European high-yield market, sterling-hedged investors are getting a yield of 7.3%⁴. That certainly? attracts our interest.

Belron

Belron is not a complete unknown. You may recognise its Autoglass brand, under which it operates in the UK (it operates as O'Brien in Australia and Safelite in the US). It generates revenues of more than €6 billion a year and is by far the biggest player in windscreen repair in all the markets in which it operates⁵. And in terms of profitability? There is no other company in the autos sector – not even Ferrari – whose profit margins compare to Belron.

There is no other company in the autos sector – not even Ferrari – whose profit margins compare to Belron.

In recent years, there has been a major change in the way windscreens are repaired thanks to the introduction of advanced driver assistance systems (‘ADAS’). Modern cars have a variety of sensors that monitor their surroundings and trigger safety alerts. When you repair or replace a windscreen in one of these vehicles, you have to recalibrate that equipment. This is a specialised task which is beyond the capabilities of many local repair companies; Belron’s expertise makes it the go-to provider for insurance companies in the markets in which it operates.

Windscreen repair might not set your pulse racing. But this is a huge company that every equity fund manager in Europe would be talking about if it were listed. We are accessing those cashflows and that dominant market position while enjoying a sterling-hedged yield of 6.22%⁶.

Cloud Software Group

Cloud Software was formed in 2022 through the merger of Citrix, a work-from-home portal, and Tibco, an enterprise software provider. A hallmark of this company is the predictability of its long-term revenue streams: frankly, once its customers have begun using its systems, they don't tend to stop. Its revenues are expected to grow at an annualised rate of 6%, which is OK, if not exactly exciting by modern tech standards⁷. What is more interesting is that its cash earnings (Ebitda) have grown by 40% a year and net leverage has moved sharply lower, from 11.5x at the time of the merger to 7.3x by 2024⁸.

Some investors may look to sectors such as telecoms and healthcare for their non-cyclical exposure. We tend to look elsewhere. The revenues and profits of many high-yield telecoms and healthcare companies have come under pressure in recent years and their leverage has increased. Cloud Computing’s revenues and leverage have moved in the opposite direction. With a yield of more than 8% (sterling-hedged), it may be one the raciest bonds in our portfolio⁹. For investors seeking income, a cloud computing company with recurring revenues, falling leverage and an 8% yield is about as interesting as it gets.