Shares to buy, hold and sell: Mark Heslop
This article is for information and discussion purposes only and does not form a recommendation to invest or otherwise. The value of an investment may fall. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.
BUY - BRENNTAG
Brenntag is a German chemical distributor that ticks all of Heslop's key boxes for investment. His approach to stock selection is to buy businesses with sustainable pricing power, barriers to competition and control of their pricing and those that are not dependent on a single supplier.
The chemical market is a fragmented one in terms of suppliers and customers, and Heslop says barriers to entering the market are proliferating.
He comments: "Because of growing complexity and compliance, the winners in this industry are doing better and better, and as time goes on they will be able to further consolidate the market." He adds that as Brenntag gets bigger, it will become even more attractive to suppliers and customers, and grow even faster. "It has a strong business model with good growth drivers," he says.
The company is growing at "mid single digit" pace and operates on an "attractive" price/earnings ratio of 18. Heslop says the shares were originally bought for the portfolio at around 60p a share, but he has been adding to his holding at a price of 106p. The share price is currently 108p.
HOLD - ELEKTA
The Threadneedle fund initially bought into Swedish radiotherapy company Elekta (EJXB) in 2009 for 27 Swedish krona (£2.78) a share. The share price now is kr97 (£10). The company manufactures x-ray machines designed to kill cancer cells.
Heslop says the ageing global population and increasing incidence of cancer mean business opportunities for Elekta are only going to increase. He adds that it has been a strong performer that has been re-rated quite often.
Currently, its market penetration is low: there is just one machine per 84,000 people in the US. Elsewhere, that ratio is even lower: 1:150,000 in Europe and 1:1,200,000 in Asia Pacific.
This means there is enormous potential for growth. Heslop says: "It is a complicated machine and there are only two real players in the market. A third player - German engineering group Siemens - is slowly withdrawing."
Heslop admits there is a slight headwind in the US, where ongoing cuts are being made to healthcare treatment reimbursement rates. However, that aside, little stands in the company's way. Its lack of competitors means it has a lot of pricing power.
Heslop thinks the company's price/earnings (P/E) ratio of 18 makes its share relatively expensive, but he remains happy to keep his holding.
SELL - BRUNELLO CUCINELLI
Brunello Cucinelli (BC:IM), a luxury goods manufacturer and retailer, was sold at the end of 2012. The brand is "aspirational" and "luxury" says Heslop, selling high-end cashmere fashion that competes with the likes of Hermes.
The Italian company is small, but it is growing fast. Heslop says it has "a very high-quality product and is evolving, although slowly". He adds that fundamentally he likes the business because of its strength and consistency.
The fund bought its holding in the company when the firm floated on the stock exchange in April 2012 at a share price of €7.75 (£6.78). It closed out of its position with a healthy profit, selling the shares for €14.65 (£12.81). The shares haven't made much ground this year; the share price is currently €15 (£13.11).
That said, the fund might consider taking a holding in Brunello Cucinelli in future. "I think it will grow into its multiple," says Heslop, praising the company's "incredible" chief executive officer. He adds: "I am not saying we would not invest in it again."
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.