2021 Grand National: Why horses for courses applies to the investment world
With a history dating back more than 180 years, the Grand National is undoubtedly one of the biggest...
A change of senior management at a company can either be a blessing or a curse for investors. While on one hand, a trusted CEO leaving the helm can cause uncertainty, the prospect of a more efficient leader taking over a firm can make for the perfect turnaround situation and investment opportunity.
Here, four Elite Rated managers give examples of companies with new managers at their helms, which have proven to be successful recovery stories.
Alex Savvides, who runs JOHCM UK Dynamic, said London-based real estate developer St. Modwen Developments is one of the most exciting management change stories he has had in his portfolio.
“It has a massive land bank for industrial property – one of the largest in the UK. It also has a very small but very fast-growing housebuilding company on its own land. The third part of the business is urban regeneration; it takes on big projects from local authorities or central government,” he explained.
“St. Modwen was a good business, but perhaps a bit sleepy. A new management team, headed up by CEO Mark Allen, came in with a different mindset and a different skillset. Mark is in the process of selling off a lot of the old assets and reinvesting in expanding the industrial property arm of the business.
“The world of logistics is a very highly-rated sector, thanks to the rise and improvement of e-commerce and the increased demand for same-day or next-day deliveries, so we think this will accelerate the company’s growth.
“On top of that, they’re growing the housebuilding branch of the business materially. They have committed to increasing the volume of land that they own by 25% each year.
“Not only does the business offer strong long-term growth prospects and an attractive dividend pay-out, it also looks materially cheap compared to other companies within the sector.”
Ben Whitmore, manager of Jupiter UK Special Situations, cited his largest holding*, BP, as a successful management changeover story.
Chairman Carl-Henric Svanberg – who took the helm in 2010 – managed to steer BP through one of the largest marine oil spills in history, despite having only been there for three months.
“It had to change the way it operated post-disaster,” Ben said. “It sold off its complex assets and shrank the company to pay the bills. This left it (unintentionally) very well-positioned for the fall in the oil price.
“It now has a good growth path for the first time in 25 years. Last year it completed its seven biggest projects of its lifetime – all within the time schedule and under budget.”
Nick Kirrage, who co-runs Schroder Recovery alongside Kevin Murphy, said sub-prime lender Provident Financial is a good example of a management turnaround story.
“Some serious missteps were taken by the previous management and its share price fell. Since then, the new chief executive has rolled out a great deal of positive changes to its business model.
“After Provident’s share price collapsed, it issued a rights offering to existing shareholders. Once the company asks for help and receives it, the balance sheet tends to get mended, the finances are underpinned, and the management team gets the breathing room needed to make the sorts of decisions which will put the business on fundamental footing,” he added.
Richard Colwell, who heads up the Threadneedle UK Equity Income fund, said Dorset-based manufacturing company Cobham is another good example.
The firm, which specialises in the aerospace and technology sectors, had issued five profit warnings before CEO Daniel Lockwood took to its helm at the end of 2016.
Richard said: “Shares rose after the company’s earnings for the full-year were better than expected. In our view, Cobham’s resilient underlying business offers multiple opportunities for value creation, which the new management team should be able to unlock; indeed the results update saw the CEO express confidence about the company’s ongoing restructuring**.”
*Source: Jupiter UK Special Situations factsheet, July 2018
**Source: Threadneedle UK Equity Income factsheet, March 2018