Shares to buy, hold and sell: Mark Hargraves


As a leading Italian free-to-air broadcaster, "Mediaset is the ITV of Italy," says Hargraves. But the company has had a difficult few years in Italy's tumultuous economy. When it was purchased just three months ago it had fallen 75% from its high in April 2010.

"Advertising has been down 25% over the past few years to 1980s levels and profits have been hit hard," says Hargraves. Broadcasting is a difficult business in a downturn because it has fixed costs that still have to be met when advertising revenues are depleted. But with share prices coming from such a low base, even small improvements in the company's prospects should spark some positive movement.

Hargraves is impressed that the company has maintained its market share, despite its share price falling. It has cut costs and is rebalancing its business, which is still sound.

Hargraves says there are already signs of recovery: year-on-year sales in July were up. At some point, the advertising market will improve, he insists.
"This is a classic case of people thinking it's the end of the world and it will never improve," says Hargraves. Evidently, those people are wrong. The fund bought the share at €1.75 (£1.50) and the price has already risen to €3.30.


"ING is one of the banks that really screwed up in the financial crisis. It was the Dutch RBS," says Hargraves.

The company, which has retail banking and insurance arms, bought a lot of US sub-prime debt. When the mortgage defaults started and the credit crunch bit, the bank got into serious trouble and the Dutch government had to step in and buy a stake. The European Central Bank was later involved too.

Hargraves says ING is now in the process of selling its insurance arm to focus on "just being a bank". The share price has hit a couple of "speed bumps" this year because that sale has been slower than anticipated, but it will take place by the end of the year. He adds: "Then we will see what is left, which is a good-quality retail bank that makes a very good return."

Hargraves has held the company since last year and is "patiently waiting" for the business to stage a turnaround. He likes the fact that it makes around 20% return on equity and is trading very cheaply at 0.5 times its book value - he feels it should be at least double that.

The fund bought the share in staggered tranches over a period at around €5. It is currently trading at €7.80. Hargraves expects this to rise as high as €12 in the next year and is happy to hold on to the share until then.


Kone manufactures lifts. The global elevator market is an unusual one in that it is dominated by just three major players (of which Kone is one). Moreover, all three companies behave "rationally", according to Hargraves.

He says the Finnish company has benefitted from huge growth in the Asian market "where every building is 20 storeys high, especially in China, where there are no houses at all, just flats".

The business, which has been held by the fund for several years, is a good-quality enterprise, but Hargraves thinks the valuation got ahead of itself recently - so much so that there has already been a pullback in the share price.

Currently, the company is trading at a price/earnings ratio of 24, compared with an industry average of 13 or 14.

"We are concerned that it might be hard for the business to maintain its pace, as it has done so well in the past few years," says Hargraves. As a result, he has been selling the share over the past three months. It is currently priced at around €56, having reached a peak of €72 back in May.

This feature was written for our sister publication Money Observer