Our unloved stocks are finally finding suitors

Questor is The Telegraph’s stockpicking column, helping you decode the markets and offering insights on where to invest for the past six decades.

The value approach Questor is following feels like it is starting to pay off – admittedly after what feels like aeons – in two ways. First, the wider market volatility is taking a particular toll on go-go technology stocks that carry high valuation multiples and even higher expectations, and we have little exposure here. (Check out the performance gap between Microsoft and gold over the past year to get a sense of how the market mood may be changing.)

Second, our portfolio continues to draw takeover approaches. Dowlais, Assura and Care Reit are all the subject of bids, and, in each case, we will wait and see what develops.

Assura drew an improved offer from private equity firms KKR and Stonepeak last week, while the US-listed CareTrust Reit announced its approach for Care Reit the day after. The boards of both UK firms are recommending that shareholders accept the offers. At Assura, KKR and Stonepeak’s bid comes to 49.6p a share in the form of cash and a dividend, bang in line with net asset value per share, while CareTrust Reit is offering 108p a share in cash for Care Reit.

In the latter’s case, this is a 9pc discount to net asset value and also marginally below our entry price of two-and-a-half years ago, so not all of the news is perfect. In this respect, though, we can draw a useful lesson about the dangers of over-reaching for yield, as we paid a minimal discount to net asset value (Nav) to access the Reit’s juicy dividend stream. It is also a reminder of the powerful influence of interest rates upon certain sectors, such as real estate and income plays.

Nevertheless, we have banked almost 17p per share in dividends from Care REIT, so we shall emerge with a small positive total return, should the bid go through.

There also could yet be three positive implications for our other commercial real estate holdings, even allowing for the very different end-market exposures offered by British Land, Town Centre Securities and Derwent London relative to the healthcare specialist Assura and care homes manager Care Reit, which was known as Impact Healthcare at the time of our autumn 2022 study.

Second, the bids for Assura and Care Reit represent premia to their pre-offer share prices of 32pc and 33pc, respectively. Finally, the discounts to Nav of zero for Assura and 9pc for Care Reit compare to the 28pc average that prevails across the wider UK Reits sector at the time of writing, and the 37pc, 41pc and 52pc discounts current afforded British Land, Derwent London and Town Centre Securities, respectively.

Lower interest rates, a brisk economy and a wider return to the desk would all help sentiment toward office-related Reits. This column cannot promise all three, or even one, but the stocks are clearly unloved and unloved can mean undervalued should something (anything!) positive occur to change perception of the sector and the companies.

Questor says: hold (all)
Care Reit ticker: CRT
Share price: 108.6p

C&C Group update

While the bids discussed above represent some affirmation of this column’s avowed hunt for value, they are no reason to get cocky and the markets are very good at keeping you humble, as evidenced by last week’s profit warning from cider and drinks specialist C&C Group.

The shares promptly lost a fifth of their value, leaving them at a 16-year low and us with a nasty book loss, at least on paper. New chief executive Roger White flagged a slow end to the year to February 2025, as well as the likelihood that there would be little improvement in profits for the year to February 2026, thanks to weaker consumer confidence and pressure on the hospitality trade in the wake of October’s Budget.

The good news is that cash flow remains healthy, and interest cover is robust. The clock is not ticking, and Mr White and team have both room in which to manoeuvre and time as they seek to effect their planned turnaround of a company where self-inflicted wounds, such as a bungled software and productivity programme, have compounded the challenge posed by fickle British weather.

Mr White’s plan for the Bulmers and Magners brewer is to drive operating profit to €100m (£84m), a figure that implies the £450m stock market valuation would be too low. Only time will tell, but dividends and a new €15m buyback mean we can be paid to wait and find out.

Questor says: hold
Ticker: CCR 
Share price: 123p