Page 27 - DIY Investor Magazine | Issue 30

INTERNATIONAL INTEREST
We are starting to see flows of money from abroad now that the UK has come through the Brexit negotiations and the economy is still doing OK; the pandemic brought a major recession, but we are also recovering from that. The vaccine roll-out in the UK is also leading to investors looking again.
But I think most importantly, valuations of the UK stock market are not only below historical levels, but significantly cheaper than many markets around the world, and that’s got investors interested again.
In fact I was recently interviewed by a French media company about opportunities in the UK, which is the first time that’s ever happened, so definitely an interesting period for the UK.
‘THERE HAVE BEEN OPPORTUNITIES TO EXPLOIT THE BREXIT UNCERTAINTY’
BREXIT – GOOD FOR THE TRUST?
It’s given us opportunities; we’ve said many times, if you look at the UK stock market rather than the UK economy, about three-quarters of the profits of companies actually come from abroad. Many multinational or global businesses are listed in the UK, so Brexit for many of them is just a minor issue in a small part of their operations.
For most companies Brexit doesn’t really make much difference and, to the extent that the stock market has devalued or lowly valued UK companies because of Brexit, there have been some great opportunities to buy companies that are listed in the UK but have operations all over the world. In that respect there have been opportunities to exploit the Brexit uncertainty.
There are one or two industries where the risks of Brexit were significant and real, but those are in the minority and have not affected us too much.
UK PLC RIPE FOR TAKEOVERS?
There’s a lot of activity, both from private equity but also from corporate buyers looking at the valuations of UK businesses and coming in with takeover approaches. We’ve seen a few quite recently: one in the retail food sector, and one in defence.
But it’s quite curious because at the same time, there’s also a lot of IPOs: a lot of new issues coming, new launches on the stock market. Investors are favouring certain types of businesses - maybe high growth, digital businesses, often without much of a track record or profitability, but businesses that have been around a long time are being neglected and trading at quite modest valuations.
So there’s a quite strange dilemma where there’s money for certain types of companies, but others are languishing behind and being identified by foreign companies or private equity.
NEW SHARE LISTINGS A MEASURE OF SENTIMENT?
We have to be careful drawing too much of a conclusion. It’s been very difficult to list a company, particularly in the UK, for the last four or five years for the reasons mentioned above: political risk, Brexit risk, pandemic.
Some businesses have been maturing and getting to the stage where raising money from other investors or releasing capital for the founders makes sense, so it’s more the latter: it’s just the right time for them and those are the types of companies that are attracting investors. They’re not necessarily the type of businesses that are more under pressure, say in the aerospace or defence area or some of the more traditional UK businesses.
HOW LONG CAN THE UK MARKET OFFER GOOD VALUE?
That’s the million-dollar question; it’s really hard to know how long this takes to play out. We try not to guess or estimate the answer to that, because it’s almost unknowable.
‘WE JUST TRY TO IDENTIFY GOOD COMPANIES TRADING AT LOW VALUATIONS’
We just try to identify good companies trading at low valuations, which allow us to generate a good return for our investors including a decent dividend yield.
I don’t think that discount or that low valuation can persist forever, but it could persist for a long time and if so, that gives good opportunities for us to continue to invest on behalf of our shareholders.
There are a number of quite interesting themes.
27 DIY Investor Magazine | Sept 2021