A professional investor tells us where he’d put his money. This week: Malcolm MacColl of Baillie Gifford’s Monks Investment Trust highlights his favourites.
Monks Investment Trust is a £1.7bn global fund that harnesses the stock picking capabilities of Baillie Gifford. Established in 1929, it consists of an actively managed worldwide equity portfolio of around 120 growth stocks. Stocks are picked on the basis of fundamental attractions, irrespective of location, resulting in a portfolio with an active share of around 90% (so nine-tenths of the portfolio differ from the benchmark index). The focus is on companies that can deliver above-average earnings growth of approximately 15% a year. Our core belief is that share prices ultimately follow earnings.
A leader in classified ads
Schibsted (Oslo: SCHA) owns a series of businesses around the world, though its heritage is in Scandinavia. Originally a print media outfit, this ambitious company has undergone a remarkable transformation with the cash flows from its newspaper business reinvested into new growth areas.
The company’s most important assets are now online classifieds platforms (including cars, homes and jobs) with leading market shares in 16 countries across Europe and Latin America. Backed by the Schibsted family trust, management’s long-sighted, committed and entrepreneurial approach to investment has allowed the company to expand successfully in these areas. We think the market underappreciates the value of these new growth assets and that a planned initial public offering (IPO) of the international classifieds operations will highlight their value.
Chegg (NYSE: CHGG) is another company that has successfully adopted an online model. Previously a low-growth university textbook provider, the company has transformed itself into the leading online education platform in America.
Its popular services include online textbooks and bespoke tutoring services through a low-cost subscription model. It has a strong on-campus brand and far lower customer acquisition costs than most online operators. Chegg serves around 10% of the 20 million university students in the US and is currently entrenching its position. Revenues have been growing at more than 40% a year, and we see significant growth potential from the company’s core offering alone. However, we also believe that Chegg could use this strong foundation as a platform to broaden its offerings and come to dominate the largely inert global education system.
Drink to Asian expansion
Pernod Ricard (Paris: RI) offers a rare opportunity to invest in a consumer-goods business delivering accelerating organic growth. The ambition and drive of Alexandre Ricard, grandson of founder Paul, looks set to leverage Pernod’s attractive portfolio of brands in some exciting and high-growth Asian markets. The company enjoys almost 50% of the spirits market in China and 50% of the premium spirits market in India. With more people reaching the legal drinking age in India each year than the population of France, the opportunity is clear.
Asia now accounts for around 40% of the company’s revenues, and we expect the emergence of middle-class consumers to boost this figure significantly. Add in a commitment to improve operating leverage (gross margins and fixed costs), and we see the potential for enduring value creation.