Marina Bond, co-manager of the Rathbone Recovery Fund tells us what she’d put in her Isa now.
The world doesn’t look quite as peaceful and rosy as it did at the turn of the year. On the plus side, the developed world is still in recovery mode, concerns over further bail-outs in Europe have been pushed to the background for the time being, and there is a lot of cash sloshing around the financial system looking for a home. However, an increasing number of the Arab states are witnessing revolutions, with some achieving significant change at the top, and others descending into an alarming degree of violence.
Existing power structures are under threat. And whilst democratic change should be beneficial for the global economy, the interests of the Western world, tangled up in those structures, are less clear-cut at this juncture. So where should investors put their money whilst all this is going on in the background? My preference would be for companies with experienced management teams, strong balance sheets, and that are leaders in their particular market niches. Here are four.
Booker (LSE: BOK) is the largest cash and carry operator in the UK, and is also the lowest-cost supplier. This means it tends to do rather well when the market is tough, which it is at the moment. The competition is struggling, with some of them laden with debt, and Booker is in a good position to benefit, backed by a strong balance sheet and great management. CEO Charles Wilson has now turned this company around twice, with an interlude at M&S. He rejoined Booker in 2005, reducing the company’s significant amount of debt, refocusing the business, and returning it to profit. It is now very much on the front foot and has opened a couple of stores in India, which could prove to be an exciting market. Under Charles Wilson’s stewardship, this company has an exciting future.
Next up is RPC (LSE: RPC), which supplies rigid plastic packaging. It sells mainly into the food sector, but also into personal-care firms, amongst others. Packaging is not as boring or as cyclical as it sounds: there is a structural shift going on from metal/glass into plastic. The latter is lighter, more portable, gives greater protection, and is also more versatile. The arrival of a new chairman and finance director a couple of years ago has given the company a new lease of life. They have restructured the business, making it more efficient, and have refocused on areas where the company is a dominant force. Similar to Booker, the competition is often heavily indebted, and RPC, with its large market share, stands at an advantage. The recent acquisition of Superfos, a European competitor, has added another leg to growth. Indeed, it is a prime example of how dynamic this management team can be.
Aveva (LSE: AVV) is a pure play software company, specialising in the computer-aided design of complex plant and ships. It also enables the management of these structures once installed, and a large proportion of Aveva’s revenues are recurring. This is another well-run business – management cleverly shifted to a leasing model around ten years ago. It has come through the recession in a relatively strong position, helped by its healthy balance sheet and cash flows. With the world short of resources, we are witnessing continued investment in the oil and gas sector, and increasing demand for nuclear power. Aveva is benefiting from new discoveries in places like Brazil, and nuclear power installations in China. While the marine market remains flat, this will not be the case for much longer, and few analysts appear to have any growth in their forecasts for this market. This stock is not cheap, but it is a quality company exploiting an exciting market niche, with a balance sheet that gives it significant fire-power.
Finally, I like Hansteen (LSE: HSTN), the industrial property company, which is also headed by an experienced management team. Their previous venture was Ashtenne, which had an extremely happy stockmarket existence before eventually being acquired. Unlike many property companies, Hansteen’s balance sheet was strong enough to see it through the recession.
And it has a good relationship with the banks, to whom it is now offering assistance, rather than the other way round. The banks are loaded with property, which they are unable to manage or hold longer term, so there are plenty of opportunities for Hansteen – distressed assets are its bread and butter. It is also benefiting from its German exposure, where the economy is not so much recovering as booming. As with most quality companies, the shares are not particularly cheap – they trade at a small premium to net asset value – but this is still a team to back.