Mike Felton
Fund manager specilized in British stock market in M&G
British stock market : among our main convictions we find Cobham and Smith&Nephew
Publié le 15 Mai 2013
What do you think about the equities market today?
The market seems fascinating since the start of the year. It reflects an answer to the move of the central Bank to inject more liquidity in the system. Ben Bernanke, governor of the Fed, talked in December to target, over a level of inflation, a level of unemployment rate in United States.
Comments came also from the governor of the Bank of England Mark Carney didn’t exclude a rise in the stimulus program by this summer. In euro zone, Mario Draghi said to think about new measures to help small companies to access more facility to funding.
This massive liquidity in the market support risky assets like equities.
I fear there is a great complacency at this moment. In short term, which means in next three months, we are a little bit cautious because of more stress in the market. In long term, the structural bull story in equities compartment is still strong.
What is the valuation of the British stock market?
If we consider the historical trend, British stock market is fair value, even slightly expansive. However, if we consider more precisely the largest stocks and the largest sectors, like the bank, the mines, and oil and gas sectors, some stocks are optically very cheap.
The performance of the market of about 10% since the beginning of the year was made principally outside these sectors.
What evolution of the British stocks market do you except?
The trend in the next few months is downside. Earnings look a little vulnerable. These earnings come through margin expansion and revenue growth. Margins are already in a very high level if we consider historical figures, so I see a small expansion of margins. Margins are 20% above the long term average.
In the front of revenue, we are living in a very anemic growth environment so it is difficult to wait for an important increase of the revenue.
Our forecast of the Great Britain and the rest of Europe is a very slow recovery.
What exactly do you anticipate from the BoE?
The new governor of the BoE Mark Carney proposed to implement a new target-nominal account target-in the monetary policy of the central Bank which provided a confidence in the sentiment that this policy will remain expansionary until the new target is reached.
The governor proposal has already been largely priced in the market. But there is a good chance that we have a transformation in the leadership and also a marginal evolution in the market. Mark Carney comments are intentionally very supported by UK domestic banks like Lloyds and RBS.
But there is a difference between to remain expansionary and to be more expansionary?
I don’t believe that the policy will be more expansionary. The BoE will probably continue with the currently program.
Except the monetary policy, which are the other catalysts for the market?
The weakened currency is good for exporters, especially for companies that report in dollars. The UK market is very opened to M&A and IPO activities. We can observe more overseas companies, like American companies, to takeover under valuated companies.
Which are the main risks?
One of the largest risks is the American economy suffer from the sequestration, higher taxes.
What is you asset allocation?
We like companies that have a very strong dividend culture. Some companies don’t hesitate to maintain a high level of their dividend, to increase this level or to pay special dividend thanks to important cash flow.
Cobham, an aerospace stock which has a very fantastic track record and that offers a good level of dividend. Cobham had difficulties last time because of the cutting in defense spending by the government. The valuation more than discounts that. We have a very important development programs for 2014 and 2015 from USA and UK.
In the healthcare area, we like Smith&Nephew. The company is tied with the obesity epidemic worldwide, and diabetes disease. The company has excellent solutions and a clever management. It turned its business to make it more profitable.
The market seems fascinating since the start of the year. It reflects an answer to the move of the central Bank to inject more liquidity in the system. Ben Bernanke, governor of the Fed, talked in December to target, over a level of inflation, a level of unemployment rate in United States.
Comments came also from the governor of the Bank of England Mark Carney didn’t exclude a rise in the stimulus program by this summer. In euro zone, Mario Draghi said to think about new measures to help small companies to access more facility to funding.
This massive liquidity in the market support risky assets like equities.
I fear there is a great complacency at this moment. In short term, which means in next three months, we are a little bit cautious because of more stress in the market. In long term, the structural bull story in equities compartment is still strong.
What is the valuation of the British stock market?
If we consider the historical trend, British stock market is fair value, even slightly expansive. However, if we consider more precisely the largest stocks and the largest sectors, like the bank, the mines, and oil and gas sectors, some stocks are optically very cheap.
The performance of the market of about 10% since the beginning of the year was made principally outside these sectors.
What evolution of the British stocks market do you except?
The trend in the next few months is downside. Earnings look a little vulnerable. These earnings come through margin expansion and revenue growth. Margins are already in a very high level if we consider historical figures, so I see a small expansion of margins. Margins are 20% above the long term average.
In the front of revenue, we are living in a very anemic growth environment so it is difficult to wait for an important increase of the revenue.
Our forecast of the Great Britain and the rest of Europe is a very slow recovery.
What exactly do you anticipate from the BoE?
The new governor of the BoE Mark Carney proposed to implement a new target-nominal account target-in the monetary policy of the central Bank which provided a confidence in the sentiment that this policy will remain expansionary until the new target is reached.
The governor proposal has already been largely priced in the market. But there is a good chance that we have a transformation in the leadership and also a marginal evolution in the market. Mark Carney comments are intentionally very supported by UK domestic banks like Lloyds and RBS.
But there is a difference between to remain expansionary and to be more expansionary?
I don’t believe that the policy will be more expansionary. The BoE will probably continue with the currently program.
Except the monetary policy, which are the other catalysts for the market?
The weakened currency is good for exporters, especially for companies that report in dollars. The UK market is very opened to M&A and IPO activities. We can observe more overseas companies, like American companies, to takeover under valuated companies.
Which are the main risks?
One of the largest risks is the American economy suffer from the sequestration, higher taxes.
What is you asset allocation?
We like companies that have a very strong dividend culture. Some companies don’t hesitate to maintain a high level of their dividend, to increase this level or to pay special dividend thanks to important cash flow.
Cobham, an aerospace stock which has a very fantastic track record and that offers a good level of dividend. Cobham had difficulties last time because of the cutting in defense spending by the government. The valuation more than discounts that. We have a very important development programs for 2014 and 2015 from USA and UK.
In the healthcare area, we like Smith&Nephew. The company is tied with the obesity epidemic worldwide, and diabetes disease. The company has excellent solutions and a clever management. It turned its business to make it more profitable.
Imen Hazgui