Too cheap to ignore
Mark Page Sep 14, 2012
Each week, a professional investor tells MoneyWeek where he'd put his money now. This week: Mark Page, co-manager, Artemis European Opportunities Fund.
Many investors spend too much time trying to interpret central bankers’ policy, assess the strength of global economic growth, or figure out whether Greece will leave the euro. But we believe that there is no need to have answers to these questions. Our focus is on bottom-up stockpicking and finding firms that are masters of their own destinies and whose fate is not dependent on external factors.
We like stable, consistent and dominant ‘quality franchises’ with a distinct competitive advantage, irrespective of the sector or country in which they operate. Attractive stocks are also those that are simply ‘too cheap to ignore’ thanks to investors losing interest. Here are three we like.
Barry Callebaut (Switzerland: BARN) is the only fully integrated chocolate company active throughout the entire value chain of chocolate production. It is a major beneficiary of chocolate outsourcing. Currently 50% of total chocolate production is outsourced (versus 30% in 2006). Barry Callebaut has around a 40% market share in a market in which the top four players outsource 10%-15% of their production.
Its gourmet division is a clear global leader with 24% market share. Global chocolate consumption has grown by 2.5% per year from 1990 to 2010. Outsourcing could add 3%-4% per annum to growth, combined with 1% coming from the gourmet business. So overall organic growth going forward should be about 6%-8% per year.
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Kinnevik (Stockholm: KINVB) is a Swedish investment company with a global footprint in media and telecoms and 60% of its assets in emerging markets. The firm founded Modern Times Group, the international entertainment broadcasting group; Millicom, a mobile operator in emerging markets; and Tele2, the low-cost telecom operator in the Nordics and eastern Europe. These businesses are now more mature and generate plenty of cash flow, which is reinvested in online ventures.
The online share of its net asset value is now 15%, up from 5% in 2011. When the group sold its stake in Groupon at the initial public offering it made a profit 28 times the amount initially invested. The online portfolio includes the largest online player in fashion in Europe and the largest online classified advertiser in Russia. Kinnevik will benefit greatly from the continued growth of e-commerce.
Ipsen (Paris: IPN) is a French pharmaceutical firm with an attractive portfolio of speciality care drugs. It’s suffered setbacks in the last three years. Expansion in America was poorly executed. Former management overpaid for a stake in a biotech firm active in haemophilia, which then suffered safety issues in one trial. The primary care division was hit by austerity measures from the French government: sales are down 20% from their peak.
Yet despite the shares underperforming peers by 30% year-to-date, we consider Ipsen attractive because new management has been called in and its efforts are paying off. It has ring-fenced the American acquisition, is turning around the US division, and cutting 40% of the workforce in France to safeguard profitability.
Better still, Ipsen’s three main drugs represent 58% of sales and demand is growing well thanks to exposure to emerging markets. The company is also debt-free and the shares trade on just 12 times 2012 earnings per share and yield 4.2%.
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