Shares to buy, hold and sell: Gervais Williams
Co-manager Gervais Williams, who runs the fund with Martin Turner, tells Michelle McGagh which shares he is buying, holding and selling.
BUY: SAFESTYLE UK
uPVC window and door maker Safestyle UK only came to the Alternative Investment Market (Aim) three months ago, but it has already made a big impression on Williams.
A total of 1.39% of the fund's £182 million portfolio is now held in Safestyle, making it the fund's fifth largest holding. The share price may have shot up over 60% since launch on Aim, but Williams is convinced it still has a long way to go, thanks to the potential for company growth.
"It has a 7% yield [at the moment] which is very nice, and the share price is up," he says. "We are still buying as the share price still has a way to go, even though it's gone up 60% from £1 to £1.64 since launch.
"The company has a strong management, and it's like a four-wheel drive investment because it will do well no matter what is happening elsewhere; it doesn't matter what's going on in Russia and the Ukraine, Safestyle will just carry on."
With a bias towards mid and small cap businesses, Williams is attracted to the £125 million company and the fact that "it is nothing like as well known as competitors like Everest".
This is a reflection of the fact that it does not advertise heavily. "It does not do a lot of advertising - but that saves on costs, which is attractive to us," he says.
The rise of Amazon's Kindle e-book reader may have hit publishers, but Bloomsbury still comprises a significant part of Williams's portfolio thanks to its early jump into online publishing. "Bloomsbury was one of the first in the market," he says. "We are buying more books and reading more [thanks to online publishing]."
Bloomsbury came to the market yielding 4% in 1994; since then the share price has risen, but the stock is still yielding 3.5%. "It has grown its income 11% year-on-year, as it was given a huge boost as the publisher of the Harry Potter books. It has cash in the bank and a strong balance sheet," says Williams.
Although Williams believes the shares are "still quite cheap", he has decided not to buy any more, as the stock already makes up just over 1% of the portfolio. "It has a market cap of £129 million, and even after all that growth it is a small cap stock," he says.
"The great thing about smallness is that you are not dominating the market. There are bigger publishers out there and Bloomsbury can eat away at their share of the market."
Williams is selling Fyffes – the world's oldest fruit brand, best known for its bananas – following an all-share merger with US-based Chiquita. The creation of ChiquitaFyffes will take the company well beyond the small and mid cap bias that is the staple of the Miton fund, with $5 billion (£3 billion) in annual revenues and a 14% global market share.
Williams has "followed the company for many years", but says the banana market is particularly difficult because of peaks and troughs in supply, creating hard to predict price fluctuations. He notes that during 2005 and 2006 Fyffes' share price peaked and then dropped to 20p.
His fund bought in at 35p and saw the shares shoot up to 100p following confirmation of the merger at the beginning of March. "The Chiquita deal... has driven up the share price. In 2012 you could buy at 35p, and now it's £1 and we have made three times our money," comments Williams.
"Chiquita is a good deal and that has driven up the share price hard; Fyffes had been yielding 6% and now it is yielding 1.8%. The yield got too low and the income came down too far, so, much as we liked the company, we sold," he adds.
The general term for the rate of income from an investment expressed as an annual percentage and based on its current market value. For example, if a corporate bond or gilt originally sold at £100 par value with a coupon of 10% is bought for £100 then the coupon and the yield are the same at 10%, or £10. But if an investor buys the bond for £125, its coupon is still 10% (or £10) and the investor receives £10 but as the investor bought the bond for £125 (not £100) the yield on the investment is 8%.
Alternative Investment Market
AIM is the London Stock Exchange’s international market for smaller companies. Since its launch in 1995, 2,200 companies have raised almost £24 billion listing on AIM. The market has a more flexible regulatory system than the main market and can offer tax advantages to investors but its constituents are a riskier investment than bigger companies listed on the main market.