Darkest before dawn for UK small caps?
This article first appeared in Professional Adviser on 10 June 2022 Fool me once, shame on you; fool...
Valentine’s day: a day of romance, love and excitement for some. While many romantics will stick to sending an anonymous card, others will spend a great deal of time, money and effort on the perfect present or date.
As people around the world get ready to celebrate, we take a look at some other fun ways to invest in our relationships:
After Christmas Day, Valentine’s Day is the second most popular day to get engaged. Danish jewellery manufacturer Pandora is known for its customised charm bracelets, designer rings, necklaces and watches. Its products are now sold in more than 100 countries – not bad for a company that started as a family-owned shop in Copenhagen. It’s a holding in the M&G Global Dividend fund.
Manager Stuart Rhodes says: “Despite the operational issues that Pandora has faced, the Danish jewellery company remains highly cash generative and has a new management team to stabilise the business and lead its recovery. We believe that the shares are extremely cheap and continue to engage with the company.”
LVMH is pretty much a one-stop shop for romantic gifts. A holding in GAM Star Continental European Equity, it boasts Moët Hennessy Champagne, TAG Heuer watches and Tiffany jewellery. Manager Niall Gallagher told us about the company in our podcast last year. He also holds Pernod Ricard, which has built a unique portfolio of premium international brands – including Perrier-Jouët champagnes and Mumm, the third best-selling champagne in the world and number one in France.
We’ve all done it: left it until the last minute – or forgotten completely – and then had to make a mad dash to the petrol station for a card and bunch of flowers. BP is a holding in ASI UK Income Unconstrained Equity.
Manager Thomas Moore told us: “Against the backdrop of gyrating oil markets, BP continues to execute well and deliver on what is in its control. Spending has been disciplined, operating costs have come down and new projects have started on time and under budget. As a result, cash delivery continues to improve and this has allowed BP to announce a dividend hike.
“The market is sceptical about the outlook for the entire oil & gas sector, but oil demand will continue to grow for at least another decade and, in 2020, we can expect the new CEO to set out a more market-friendly view on energy transition and BP’s long term strategy. At a dividend yield of 7%, dividend sustainability is not priced in, let alone dividend growth.”
A traditional date might mean a meal out. Restaurant Group, which operates more than 500 restaurants and pubs around the UK, is a long term holding in JOHCM UK Dynamic. With chains including Frankie & Benny’s, Joe’s Kitchen, Wagamama and Garfunkel’s, it caters for most tastes and won’t break the bank. The company has also recently benefited from an airport concessions win for multiple sites at the new Manchester Terminal 2. “This reaffirmed to us the undoubted synergies available by bringing the Wagamama brand into the group,” manager Alex Savvides said.
A trip to the cinema is another popular option. Cineworld is a holding in Marlborough Multi Cap Income. The only UK quoted cinema business, it listed on the London Stock Exchange in 2007. Manager Sid Chand Lall told us: “Cineworld is now the second largest cinema operator in the world. Last year it sold and leased back of some of its cinemas in America, which means it released several hundred million of cash and paid a special dividend as a result.”
Valentine’s Day has historically been the busiest night of the year for Domino’s Pizza, a holding in Unicorn UK Smaller Companies fund. With special offers enticing couples – including the chance to win a ‘Domino’s 22 carat engagement ring in 2017 – it’s a popular choice for couples wanting a cosy night in.
Unicorn UK Smaller Companies also invests in City Pub Group, for those wanting to venture out, and Card Factory, for the all-important written declaration of love.
Giles Hargreaves and Eustace Santa Barbara, managers of Marlborough Special Situations, holds shares in package holiday company Dart Group. Dart Group operates Jet2 and Jet2 Holidays. They said: “The demise of Thomas Cook should present a good opportunity for several players in this space to pick up share, and Dart Group’s focus on customer experience has meant it has grown steadily (and substantially) in the past several years.”
Match Group is in the business of relationships. Liked by equity and bond managers, its a holding in Rathbone Global Opportunities and Baillie Gifford High Yield Bond. Rob Baltzer, co-manager of the Baillie Gifford fund says: “Match Group is an unrivalled portfolio of dating apps and websites, with global reach and incredibly broad appeal across formats such as Tinder, Match.com, PlentyOfFish and OKCupid.
“Online and mobile dating services are a phenomenon that has boomed in recent years because they address the fundamental human need for companionship, in an efficient way. Match Group is growing quickly and profitably, generating cash in a way that most high yield-rated companies would envy. The relative novelty of its business (despite having started out in the mid-1990s) and the pre-IPO history of high debt levels have caused credit ratings to lag behind our view of the company’s creditworthiness. We’ve swiped right!”