China A-shares were among Black Friday investment bargains

China A-shares were among Black Friday investment bargains

As shoppers all around the world head to stores and online to try and unearth bargains this Black Friday, here is a round-up of undervalued opportunities and investment ‘bargains’ from a selection of fund managers.

Eric Moffett, portfolio manager of the T. Rowe Price Asian Opportunities Equity fund:

“In the 15 years I have been investing in emerging markets, I have never seen greater inefficiencies than in the China A-shares market today. This is partly due to it being a deep market. There are a lot of good companies, but many remain hidden from foreign investors.

As a retail-driven market, information is not often published in English, nor are investor roadshows a feature of corporate activity. It means only a small percentage of the market is owned by foreign investors. This represents a great environment for finding mispriced opportunities.

Of course, poor quality companies in the A-shares market are present, particularly down the market cap spectrum. However, it is possible to find blue-chip companies, which are growing by about 15% a year, at reasonable valuations. This level of growth may be less attractive to local investors, but for the astute investor, these are quality companies with sound balance sheets and good dividend profiles.”

Thomas Sørensen and Henning Padberg, portfolio managers of the Nordea 1 – Global Climate and Environment fund:

“Buildings are responsible for a considerable portion of global man-made carbon emissions. This is expected to get worse as the urban population increases, especially in emerging markets. It is now a priority to ensure the buildings where we live and work every day are more sustainable and less harmful for the planet. This gives rise to many opportunities for companies operating in the intelligent construction space.

Solutions range from optimising the design and construction process – to energy-efficient insulation materials, heat-recovery systems, lighting automation and smart energy management software. All these contribute positively to society by helping to lower operational costs and the environmental footprint of buildings.

We have identified several attractive investment cases currently undervalued by the market. Johnson Controls is one of the well-positioned companies to benefit from this demand, due to its broad product offering in building automation and efficiency.” 

Jacob Mitchell, portfolio manager and CIO of Antipodes Partners:

“The fervour to be on the right side of the change during this disruption age has distorted the valuations of many stocks within the tech space – with valuations of the perceived winners driven to excessive levels, at the expense of many fundamentally sound businesses. Qualcomm, which invented many of the technologies at the heart of the communications revolution over the past 25 years, is a good example of this.

“It operates as two businesses – licensing and technologies. Licensing generates revenue by charging device manufacturers for the use of Qualcomm’s intellectual property. This is typically a stable, high-margin business.

“Qualcomm’s technologies business supplies chips to power mobile devices. This business has the leading market position in a highly consolidated industry – with extremely high and growing entry barriers. Qualcomm has been historically undermanaged, with margins significantly below what we believe achievable given Qualcomm’s scale. Semiconductor peers with similar dominance routinely generate operating margins above 20%, versus Qualcomm’s more recent levels in the mid-teens.”

Chris Hiorns, manager of the Amity European Fund at EdenTree Investment Management:

“I believe the recent sell-off in industrials and consumer discretionary sectors in Europe was too indiscriminate. The market priced in a severe economic slowdown on many value companies, which were already trading on low multiples. However, this created a good opportunity to increase our exposure to high quality companies trading on low multiples.

“There is a current soft patch in the European economy, mostly driven by the short-term impact of new emissions standards on the automotive industry. However, this should give way to a recovery in economic growth, business and consumer confidence.

“I have added to holdings in Schneider Electric, which is well positioned to benefit from increased spending on the green grid as we move more towards renewable generation and electric vehicles. I also added to Smurfit Kappa, a packaging company well-placed to benefit from the rise in e-commerce driving parcel volumes.”

Oliver Harris, managing partner of Montreux Capital Management, adviser to the Montreux Healthcare fund:

“Specialist care is one of the purest forms of socially responsible investment and falls in line with the third Sustainable Development Goal of ensuring good health and promoting wellbeing for all. By supporting rehabilitation and enabling patients to live more independent lives, specialist care provides a definable social benefit.

“Despite evident need in the specialist healthcare space, little private sector attention has been paid to it, leaving a fragmented and inefficient market ripe for consolidation. The top ten providers own less than 15% of the sector, which is dominated by smaller businesses. This offers lucrative opportunities for a large national provider to streamline operations, drive efficiencies through the business and ultimately, improve care.

“The advantage of investing in the provision of an essential service like healthcare is this demand is relatively immune to markets, the economy and policy changes. Returns are not correlated to equity and fixed income.” 

Claire Shaw, manager of the OYSTER European Mid & Small Cap Fund at SYZ Asset Management

“Proton therapy is a type of cancer radiotherapy deemed superior to conventional radiotherapy, due to its better treatment efficacy and the minimisation of exposure to healthy tissue to the fact there is no exit beam.

“Ion Beam Applications (IBA) is the market leader in proton therapy – with approximately 50% of the global share – in this structurally attractive, oligopolistic market. With cancer being the leading cause of death in the developed world and as cancer rates rise dramatically above the age of 55, the oncology market is set to continue to grow at a 15% CAGR to 2035.

“Belgian-listed IBA has delivered four profit warnings in the last 12 months, mainly due to delays in the construction process of its systems, which have caused the share price to more than halve. Despite these short-term, cyclical headwinds, the company benefits from high barriers to entry, a strong backlog equating to over €1bn of sales and a rock-solid balance sheet which can support future growth.”

Thomas McMahon, senior analyst at Kepler Partners:

“As concerns around a hard Brexit, the outlook for UK retail property and a rate rise have weighed on the whole UK property sector, discounts have widened this year. The same is true of Ediston Property Investment Company.

“Despite solid NAV performance and an above-average yield for its sector, the trust trades on a wider discount than its peers. This is perhaps due to its lack of visibility compared with more established peers run by large institutions.

“Ediston invests in commercial property with a strong emphasis on asset management, with the intention of developing properties and generating rental and capital growth. The trust aims to provide a covered and growing dividend, paid monthly. It has achieved this since it was fully invested.

“This year’s dividend is on course for 4.5% year-on-year growth, with the trust yielding 5.5% on a forward-looking basis.”

Ken Wotton, manager of the LF Livingbridge UK Multi Cap Income fund:

“The small and mid-cap market, which is often under-researched, is regularly negatively associated with high levels of risk and volatility. However, the reality is vastly different to the perception. As political uncertainty floods the UK market, smaller companies are thriving against larger, more cyclical peers.

“Despite this, smaller stocks still tend to fall under-the-radar. This leads this area of the market to trade at a valuation discount to larger, more well-known, peers. One such hidden gem is Knights, a UK legal services business operating under a commercial structure without an equity partnership. It has good quality earnings streams with diversification across customer, fee earner and an area of legal service.

“Management has driven a strong growth strategy – combining recruitment of quality regional lawyers, as well as making acquisitions at attractive multiples. Knights achieves high EBITDA margins for the sector, through driving efficiencies in the ratio of fee earners to non-fee earners.”


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