Each week, a professional investor tells us where he’d put his money. This week: Guy Anderson of the Mercantile Investment Trust highlights three British favourites.
Against the backdrop of heightened political risk in the UK and abroad, combined with a notable slowdown in global economic growth, seeing beyond the uncertainty can be challenging. However, because we focus on the attributes of individual businesses we can still unearth companies that are both fundamentally robust and have the potential to be long-term winners, even if the immediate geopolitical and economic climate is tough. We are always poised to take advantage of strategic opportunities as they arise, and the current market environment is generating opportunities to buy potential long-term winners at attractive prices.
The Mercantile Investment Trust invests in a diversified portfolio of UK companies outside the FTSE 100 index with significant scope for growth. The UK is home to both domestically-focused businesses as well as those that are more global in nature. Within the first category, valuations have been depressed ever since the June 2016 EU referendum result – but we still believe there will be long-term winners once the Brexit fog lifts.
Grafton Group: beyond DIY
Grafton Group (LSE: GFTU), the builders’ merchant, is a company that has been performing strongly despite the uncertainty unsettling its market. Weekend DIY is being replaced by “do it for me” and by focusing on this trend through Selco, its trade-only builders’ warehouse format, Grafton has been able to outperform a competitive market. The company has ambitious growth plans while competitors are struggling with outdated IT systems and unwieldy real-estate footprints. Having reported admirable growth (earnings have risen by an annual 15% over the past three years) in a tough market, we expect the company to emerge in an even stronger position once once there is more clarity over Brexit.
Games Workshop: going global
While the past five years have proved to be very tough for high street retailers, an unlikely resurgence in table-top fantasy war games has been a boon for one of the key names in this sector, Games Workshop (LSE: GAW). The manufacturer and retailer of Warhammer 40k has seen remarkable growth since the appointment of a new chief executive in January 2015 with the shares returning more than 1,200%, making it the strongest performer in the FTSE 250 over that period. We still see further value as this exporter embarks on an international multi-channel expansion. With more than 40 years of experience, the company is rich with intellectual property and finding a growing number of avenues through which it can monetise this.
SSP: captive consumers
Retail spending has also held up well within captive locations such as airports and railway stations. SSP (LSE: SSPG) is a best-in-class food and beverage concession operator at these travel hubs. The company has been able to display strong growth in sales, both from its existing store base and by expanding internationally, while margins have been improving following several years of effective cost-cutting. The share price has been weaker this year following the news that Kate Swann was to end her successful period as chief executive, but we feel these fears are overdone and she is leaving the company in a strong position for further growth.