As much of the City lost its collective head in the immediate aftermath of the EU referendum, one fund was out in the market snaffling up as much as it could in what amounted to a share-based variant of Bargain Hunt.
The £44 million Aurora Investment Trust would not on the face of it look the savviest of investors. Until a complete turnover of its mandate in January that saw the fund dumping Mars Asset Management, its long-time manager, and replacing it with Phoenix Asset Management, it did not seem obvious that Aurora had much of a future as its assets dwindled to just £16 million.
Yet 11 months on and Phoenix has lifted Aurora from the ashes — the trust’s shares currently trade above net asset value. Year-to-date performance has been respectable with a share price return of 12.6 per cent against 11.2 per cent for the all-share index.
Phoenix’s approach to managing the trust’s assets is based on a catalogue of roughly 80 companies the manager tracks closely, only buying when a stock is worth at least half of what the fund thinks the business is actually worth.
Returning to Brexit, in the months running up to the vote about a quarter of the trust was held in cash, but with the collapse in the value of many shares immediately after the vote, Aurora bought big into housebuilders, an old favourite.
Of Aurora’s ten largest holdings, three are in the housebuilding industry, including its largest individual constituent, Bellway. The investment has paid off as the sector valuation has improved.
In the same vein, Aurora has taken advantage of the string of PR disasters at Sports Direct to continue building its holding in the retailer.
With cash holdings currently of just 2 per cent of assets, rejigging the portfolio will mean cutting some holdings and building others. The most obvious example of this has been the shrinking of its stake in Barratt Developments, mainly because of concern over the builder’s exposure to the London property market, but at the same time the capital has been redeployed into Redrow, another housebuilder.
The buy-to-hold strategy looks to be paying off and Aurora looks like a good hold in uncertain times.
My advice Hold
Why With continuing uncertainty over Brexit infecting every sector of the economy this looks like a solid hold
C&C Group
On the face of it, C&C Group’s decision to hand over the distribution and marketing of its Magners brand in England and Wales to AB InBev seems like a hoisting of the white flag in the world’s biggest cider market. It is certainly an acknowledgment that it cannot fight Heineken — the clear market leader with its Strongbow and Bulmers portfolio — on its own, but by teaming up with the world’s biggest brewer, C&C has given itself a much more powerful position.
It is very much a two-way street, though. AB InBev UK may have strong beer brands such as Budweiser and Stella Artois, but its attempt to create its own cider five years ago, Stella Cidre, has effectively failed, with Nielsen data showing a 40 per cent slump in sales. AB InBev will now wage war against Heineken, having Magners and Blackthorn in its armoury. There is much more to the expansion of this 20-year partnership between the brewers, which dates back to when C&C bought Tennent’s from AB InBev in 2009. The brewing deal, under which C&C produces certain brands including Stella, was due to run out next year but will now be expanded and increased to C&C’s advantage.
My advice Buy
Why Deal has scope to move earnings dial after year one
Glencore
There is risk appetite and then there is Glencore. Not a business to ever be cowed — in commodities trading you cannot be too fussy who you deal with — the trading giant has raised all sorts of eyebrows with its complicated buyout of a hefty slice of Russia’s stake in Rosneft, the country’s largest oil producer. The trade effectively amounts to a pawning by the Kremlin of a 19.5 per cent stake in Rosneft in return for €300 million of Glencore’s money and a €2.5 billion investment by the Qatari Investment Authority, which is also the trading company’s largest shareholder.
For Glencore the deal is tied to a 220,000 barrel-per-day offtake agreement with Rosneft that will propel the business into second place in oil trading, a market in which volume is everything and controlling vast amounts of supply is vital to profitability.
Analysts at UBS estimate that the deal will net Glencore about $80 million a year in trading profits, a not insubstantial addition to its bottom line and a 25 per cent annual return on its Rosneft investment.
Coming only weeks after Glencore announced a $1 billion buyback of its debt, it marks another demonstration by the company that it is serious about showing investors it still knows how to play the game.
Those fearing potential retaliation from the US for sanctions breaches can only imagine that the lawyers have done their homework and that the deal will stand up to the inevitable scrutiny it will get in light of American and European Union financial sanctions.
My advice Buy
Why The shares are cheap and the deal will boost profits
And finally . . .
Until houses stop burning down, it seems likely that the services of firefighters will still be required and with most people agreeing that clean drinking water is vital for human civilisation, it seems that Marlowe, which raised £10 million yesterday, is unlikely to see a downturn in its earnings any time soon. Marlowe has a string of fire protection businesses and water treatment companies and is now on the hunt for acquisitions, an ambition that investors appear only too happy to fund after shares rose by more than 70 per cent last year.
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