Shares to buy, hold and sell: James Thomson
BUY: TENCANT HOLDINGS
Listed on the Hong Kong stock exchange, Tencent is "one of the largest internet companies in the world that you've never heard of," says James Thomson, manager of the Rathbone Global Opportunities fund.
Tencent has a huge customer base in China, with 825 million instant messenger users, as well as owning Facebook equivalent QZone and a mobile app similar to the UK's popular WhatsApp (a free messaging application). It even has its own virtual currency of Q Coins. "Ask anyone in China about QQ's and they will know exactly what you are talking about," says Thomson.
Although the share is not cheap, with a price/earnings (p/e) ratio of 22, Thomson believes that "premium value has brought with it premium profits and premium growth". Boldly, he says he expects 20% profit growth from the share within the next year and is particularly attracted to its strong brand and pricing power.
Though he has held the share for several months it was topped up in May, which he says was good timing as it has risen in value already.
Founded in 1998 and listed in 2004, Tencent shares are currently priced at HK $308 (£26).
HOLD: VISA INC
Thomson has held Visa shares on and off since 2008, selling out of the position at one point when US legislative changes were looking to threaten its prof- its, before buying back into it in 2011 when the threats failed to materialise.
Visa takes a fee whenever a customer uses a card, but the attractive part of the set-up is that it takes none of the credit risk; it simply charges for authorising the transaction. Taking 15 pence for every £100 might not sound like much ground for make big profits but, says Thomson, 150 million transactions every day "equate to real money".
He believes the long-term potential of the company is impressive too, pointing out that some 85% of the world's financial transactions are still conducted in cash.
"There is huge potential for growth as consumers in the developing world become more comfortable using plastic," he says. Additionally, unlike Mastercard, which he also holds, Visa does not currently have a presence in Europe – Visa Europe and Visa Inc are two separate businesses.
There are rumours, however, that the former may once again become part of the latter, "which could be a potential boost". The share is currently priced at $181.30 (£115) and Thomson is happy to continue holding it. That isn't to say he thinks the valuation is currently cheap, but it is good value with strong fundamentals.
SELL: TULLOW OIL
"Tullow was a hugely successful oil exploration business in its early life but falling prices have squeezed the valuation and amplified several uncommercial [oil well] discoveries," says Thomson of his decision to sell his position in mid April.
Tullow is in the middle of an "awkward transition" from an exploration company to a more production-oriented business, says Thomson, "and with that comes political and geological bottlenecks".
"Getting oil out of the ground and to market are very different skill sets," he adds. And, trading on a valuation of 1.2 times its core net asset value, he does not think it looks good value for money.
Thomson has owned the share, currently priced at £1,047, on and off for several years, but says it just hasn't done particularly well recently.
However, he is not turned off by oil companies in general, he points out, and the fund still has exposure to oil services companies as well as shale oil and gas companies.
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.
Net asset value
A company’s net asset value (NAV) is the total value of its assets minus the total value of its liabilities. NAV is most closely associated with investment trusts and is useful for valuing shares in investment trust companies where the value of the company comes from the assets it holds rather than the profit stream generated by the business. Frequently, the NAV is divided by the number of shares in issue to give the net asset value per share.