Citywire AA-rated Nick Train is looking to spend a likely influx of cash by topping up on a number of stocks in his Lindsell Train UK Equity fund that he believes present 'compelling value' after falls in the stock market sell-off.
Two of the stocks in Train's concentrated £4.8 billion fund, representing 5.5% of the portfolio, are subject to takeover bids, meaning Train could be handed around £260 million for his stakes in Fidessa (FDSA) and Dr Pepper Snapple (DPS.N).
Should their respective takeovers by Swiss banking software firm Temenos (TEMN.S) and US coffee company Keurig Green Mountain succeed, Train has his eye on a number of candidates for the cash from his portfolio.
'At the start of the year, I might have hesitated about where to aggressively deploy 5% cash, given the strong returns from many holdings in 2017 and I might have wondered if a new holding might’ve been initiated,' he said in his latest update to investors.
'Today I’m not saying there aren’t new ideas that could be introduced to the portfolio, but I am saying that many existing holdings are looking compelling value to us again.'
Train (pictured) noted that before March's rally, Burberry (BRBY) was down nearly 25% from its 2017 peak. Payroll system provider Sage (SAGE) has fallen 22%, analytics provider RELX (REL) dropped 18%, investment businesses Schroders (SDR) and Hargreaves Lansdown (HRGV) are both down 15%, and drinks maker Diageo (DGE), snack company Mondelez, and consumer goods giant Unilever (ULVR) are all down by more than 10% from recent highs.
‘Some of the falls in our major holdings are already not trivial,’ he said. ‘10% declines are usually acknowledged as "corrections", with anything at 20% or more down seen as a proper bear market. Those declines are getting interesting to us,' he said.
Train has already added to his holding Burberry, which he believes UK investors need to be reminded is an ‘exceptional brand’ despite ‘the excessively cautious valuation the brand is accorded’.
‘We have been adding to our holding, as has the newest strategic investor in Burberry, Groupe Bruxelles Lambert - which has now moved to owning 6.6% of the company,’ said Train.
‘Check GBL out - it has a great record in identifying undervalued, quality assets.’
One holding that has better weathered 2018 to date has been Pearson (PSON), up 4.6% in 2018 so far.
But the education publisher is a long-term laggard for Train, having nearly halved from an early 2015 peak.
The stock is also held in the Lindsell Train Global Equity fund, and James Bullock, co-manager on that fund alongside Train and Citywire AAA-rated Michael Lindsell, believes February's full-year results showed some ‘subtle... optimism’.
Headline figures showed a return to profitability and falling debt, as well as a better-than-expected dividend.
Bullock said Pearson was like Nintendo (7974.T), another Lindsell Train holding, back in 2014, as it struggled with digitisation's transformation of gaming.
‘Investors have long feared disruption from a digital shift and to some extent it is now happening,’ he said. ‘However, the key threat that many had envisaged - that barriers to entry would collapse, ushering in hoards of new competitors - doesn’t seem to have materialised.’
He added that Pearson’s core offerings were ‘extremely valuable to customers’ and the market share in US higher education courseware had risen but the price was being reduced by the likes of Amazon (AMZN.O).
‘For an incumbent like Pearson, digital should be an opportunity to add value to products that have changed little over the past decades,’ said Bullock.
‘The overall business is now 69% digital and services so there’s plenty more for them to do. 2018 will be a critical year operationally but some early green shoots are already evident.’