market folly

We're posting notes from the London Value Investor Conference 2016.  Next up is Alex Wright of Fidelity Special Situations Fund.  Alex pitched long Royal Mail and long CRH.


Alex Wright's London Value Investor Conference Presentation

Likes situations where capital is leaving an unloved sector. They try not to invest where there is too much supply. They like oil and gas, banks and life insurers but do not like mining and supermarkets where there is too much supply.

They look at internal changes to companies and for credible turnarounds. They like to research companies where there are lots of changes taking place – 10 or so changes are more interesting than 1 or 2. They research competitors, customers and suppliers but try not to be led by management. There are lots of opportunities for value investors in the UK at the moment.


Investment idea: Royal Mail 

A recently floated stock with 8% FCF and 5% dividend yield. There are substantial changes going on within the company and in the sector. Amazon does not want to take more business away from RM. It has already taken what it wants – about half of RMs business – only small packages remain.

Some competitors are exiting, especially in the letter delivery business. Royal Mail can make more efficiency savings. Belgium Post now has 3x RM’s margins. He is not scared by RMs pensions commitments. RM workers are already well rewarded compared to competitors and might keep the highly unionised workforce acquiescent. There are significant property assets which could be sold off. 


Investment idea: CRH 

CRH is building materials company. It is the second largest building and material company globally focusing on mature rather emerging markets.  It has a very strong balance sheet.  Projected FCF for next year 9%. CRH is a cyclical recovery play. The building industry is still recovering in the US after the recession. Things are recovering slowly in the EU. There is plenty of recovery potential still to go from a cyclical point of view.

CRH made a good purchase of assets at a cheap price last year which came out of the merger of Lafarge and Holcim. That combined with a cyclical recovery means there is potential for a recovery in margins.



Be sure to check out the rest of the presentations from the London Value Investor Conference.