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Market Q and A: Ruth Keattch

Friday 23 March 2007 12:25PM

How do you interpret recent movements in the markets?
 
Recent wobbles reflect strains in the US housing market and sub-prime lending.  Without wishing to appear too complacent, the world is bigger than this.  Asia is experiencing rapid infrastructure development and the emergence of a new generation of consumers.  Businesses active in the region have little to fear from a flat performance in the West.  So we have been selectively buying on the dips, believing it would take a much greater shock to derail the global economy. 
 
Name three stocks you have been buying and why
 
1. Victrex
One of the great strengths of the London stockmarket is that global opportunity can be captured through well-established, well-governed UK companies.  Such a company is Victrex, the dominant world supplier of PEEK, a plastic that is replacing metals in car engines, medical implants and a host of other high performance applications.  As a highly technical specialist materials company, Victrex is something of an anomaly in the Chemicals sector.  It is often overlooked and frequently sniped at on relative valuation grounds which fail to take account of Victrex’s superior returns and long term growth opportunities.  The shares have made little headway over the last year and look good value.    
 
2. Mecom
Despite its deteriorating image, the AIM market is always capable of producing winners.  Mecom is the media vehicle of David Montgomery, formerly of Mirror Group.  Mecom is buying and consolidating newspaper assets in Europe, where prices are attractive relative to the UK and recurring revenues are higher. Following a number of complementary acquisitions, Mecom has considerable opportunity to realise efficiencies and grow profits and cash.  The company will move up to the main market later this year, when its market capitalisation of over £1bn will present a much higher profile to analysts and investors.     
 
3. Hawesko
Hawesko is sometimes described as the Majestic Wine of Germany.  Contrary to common belief, the Germans are keen consumers of wine and are increasingly attracted to international premium brands.  Hawesko’s franchised store network and wholesale distribution are developing under their own steam, steered by a careful proprietor who values cash flow, dividends and long term business success.  The shares are undervalued, in our view, and are natural beneficiaries of improving German consumer confidence.
 
Name some stocks or sectors you are avoiding/underweight (and why)
Loss-makers and highly fashionable stocks rarely make it into Troy’s portfolios.  We see little appeal in ‘exotics’ in areas such as Russian resources, Ukrainian property and Chinese renewable energy.  Standards are often dubious and we have neither a head for heights nor stomach for a free fall. Closer to earth, we are wary of property and infrastructure related companies where prices have been pushed too far by the availability of cheap finance and the vogue for alternative assets.   
 
What significant changes have you made to your portfolios in the last three months?
We try to hold stocks for the long term and we are not frequent traders.  Recently however we moved to trim the more exuberant performers in the Trojan Capital Fund and add selectively to the fallers, feeling that valuations had widened too far.  New holdings were acquired in the medical technology companies Coloplast of Denmark and Phonak of Switzerland.  Both offer attractive growth prospects as well as defensive qualities, which could prove helpful if the global economy comes under genuine pressure. 
 
Has any piece of recent research you read particularly impressed you?
So much company research is short term and geared towards the generation of fees and commissions.  It is always refreshing to read reports that add a more long term, strategic view, such as the excellent leisure sector pieces by Paul Hickman of KBC Peel Hunt. 
  
How do you read the outlook for the next 12-18 months?
A common current observation is that equities look good value compared with bonds, property and private equity.  We agree, but are wary of such relative reasoning. What matters to us and investors is the absolute value of equities.  The UK stock market has absorbed recent interest rate increases with relative ease, but consumers are starting to feel the pain, while private equity activity, a major prop to the market last year, could fall away.  It is possible then that recent bouts of volatility might repeat themselves, and we are holding a reasonable level of cash to take advantage of any setbacks.   
 

Source: Hemscott  * = prospective p/e based on consensus forecasts. Data as at March 21st 2007
 

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