Buy, hold or sell: Asim Rahman
BUY: HELLA KGAA HUECK & CO
Rahman and John Bennett, lead manager of Henderson European Focus, bought into recently listed Hella Kgaa Huek & Co (Hella) in March this year at around €43 per share.
According to Rahman, the stock first and foremost fits into a wider ‘smart car' theme that currently runs through the portfolio and focuses particularly on suppliers of cutting- edge automotive technology.
"There has been a shift of power from original equipment manufacturers such as Daimler and BMW towards the auto suppliers. A lot of the technology that is in the cars we buy today is created by secondary suppliers, and so they have become much more important to the industry," says Rahman.
He adds that while Hella participates strongly in the current trend for in-car technology, such as Bluetooth connectivity, it is also a leader in LED light technology used in head-lamps and interior lights, which should help to push the company beyond its peers.
Additionally, Hella is currently trading at a price to earnings (p/e) ratio of less than 12 times, making it much cheaper than its competitors; moreover, a number of cost-cutting initiatives could boost its margin.
"Hella is at a valuation discount, while margin upside could come from a reduction in research and development expenditure, which is currently high relative to its peers. The company has also said that sales and administrative costs could come down, as could capital expenditure which should help free cash flow generation," Rahman claims.
HOLD: BAYER AG
German pharmaceutical giant Bayer is a long-term holding and currently the trust's fourth-largest position at 4.2%. According to Rahman, a number of factors make the firm attractive, not least its strong growth rate.
"Bayer's pharmaceutical division has been enjoying quite high growth rates recently; in 2014 it saw 11% growth, which is very attractive compared to other European pharma and even global pharma," he says. The manager says that Bayer's current release of new drugs is driving this growth in its pharmaceutical division, and with further products in the pipeline now in their second phase of development growth could continue to surge.
Like Hella, Bayer is also trading at a discount to its peers - in this case due to an unpopular chemicals division. Due to their highly cyclical and typically lower-margin nature chemicals are often frowned upon by investors, but Rahman hints that a sale could be in sight, which could boost Bayer's valuation.
Bayer also stands to benefit from a weaker euro as around 69% of its sales come from outside Western Europe, while low interest rates are also a boon to its balance sheet. Rahman explains that the firm is currently a hold rather than a buy due to its already prominent position in the portfolio.
SELL: KONINKLIJKE KPN
As buy and hold investors, Rahman says that it is not often he and Bennett sell out of stocks completely, but Dutch telecommunications firm Koninklijke KPN is an exception. He explains that the firm was added to the portfolio in January last year largely to correct its underweight in the telecommunications firms, while they could also see potential for improvement at the company.
"When we bought KPN it had seen an improvement in certain key performance indicators such as the number of mobile subscribers, and stabilisation in domestic market share and in underlying revenue," says Rahman.
The manager says the firm has also indicated that its capital expenditure will come down, which is unusual for a telecommunications company. This, combined with the expected disposal of its Belgian arm, has served to boost KPN's share price over the past year.
However, he says that now is the time to sell: "A lot of these factors have played out; the shares have done well, which has been reflected in a richer valuation and also more positive sentiment around the stock from a sell-side perspective."
KPN is also planning to roll out 4G on a large scale, a plan that Rahman has serious doubts over and that has served as yet another reason for him and Bennett to take profits.
This feature was written for our sister publication Money Observer
A catch-all phrase that can range from assessing the price of a property or vehicle before offering it for sale or the net worth of assets in an investment portfolio to the prices of shares on a stock exchange.