Shares to buy, hold and sell: Paul Marriage
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.
Paul Marriage is manager of the Cazenove UK Smaller Companies fund, our winner of the UK Smaller Companies sector at this year's Moneywise Fund Awards. With strong performance, up 28.5% over one year and 75.9% over three, the fund has £229.6 million under management.
Here are the latest stocks he has bought and sold and the one he's holding on to.
BUY: LOW AND BONAR
Listed in the FTSE small-cap index with a market capitalisation of £157.48 million, Low and Bonar is a specialist chemical and plastics business. Marriage says the company is underrated because people do not understand the business or how well it is improving. But it is developing its quality of earnings well and has good exposure to niche markets.
"We like niche market leaders as they control their own destiny in tough environments," says Marriage. The company has a lot of euro exposure that many investors may see as a negative, he says, but it has a very attractive price to earnings (P/E) ratio of eight and is generating a lot of cash.
Marriage says the euro exposure is not a problem if you believe that the situation in Europe will eventually improve. If you do, you cannot wait until after the recovery if you want to make gains.
"You're not going to make the money after things have got better," he says. Marriage adds that there is still a lot of scope for development within the company and it is trying to reposition itself as a global leader in its industry, which means that growth could happen very quickly.
It currently yields 3.85% and pays a dividend of £2.10. Marriage bought the share at 42p and it is now trading at 54.5p.
Marriage originally had an interest in Brady when it first floated on the Alternative Investment Market in June 2004, but it was a flat investment and the company needed to improve in many areas so he sold the shares.
Now, eight years later, Brady has addressed its problems and has a market capitalisation of £83.45 million, leading the Cazenove fund to invest in the shares 18 months ago. It is now one of the fund's longerterm holdings.
Brady specialises in software for trading commodities such as iron ore and steel and Marriage believes it to be one of the leading providers in the sector.
He originally sold out of the company as, despite it having good technology, it was not so adept at selling it. However, it has since improved and he bought back in 18 months ago.
With good recurring revenue and top-line growth across the world on top of a number of successful acquisitions, the company accounts for 1.9% of the fund's portfolio. "Brady is good at organic growth and I think it is quite an attractive target for a global player," says Marriage. "I knew what was wrong back in 2004 and I knew what was interesting, so when I saw that those issues were fixed it was a much better business to come back into."
Marriage bought shares at 77p and they are currently trading at 104p, yielding 1.45% with a P/E ratio of 29.
Mears, a FTSE small-cap company, is an outsourcing business with two arms - one conducting maintenance works for local authorities and another providing home care, such as cooking for elderly people.
"It has been a strong performer for us; we bought it on a low rating thinking it had good earnings momentum," says Marriage. But he sold out of the position in September this year, after holding the shares for just six months. He made a tidy profit, buying the shares for 240p and selling for 285p.
The current yield is 2.56%, the P/E ratio is just under 15 and the company is paying a healthy dividend of 7.5%. It now has a market capitalisation of £259.29 million.
Despite these appealing numbers, Marriage believes that Mears will begin to face headwinds in the markets it operates in. The company, he says, is reliant on local authority spending for both parts of its business, and the government is tightening the purse strings.
"There are still challenges in the local authority spending market and we now think it's a fully rated business," says Marriage. He admits that when he bought the shares he thought investors were "overcooking the downside" but now he too can see future problems on the horizon for the company.
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%.
A way of valuing a company by the total value of its issued shares and calculated by multiplying the number of shares in issues by the market price. This means the market capitalisation fluctuates continually as the value of the shares change in the market. For example, HSBC has 17.82bn shares in issue at a price of 646.2p making a market capitalisation of £115.15bn.
If you own shares in a company, you’re entitled to a slice of the profits and these are paid as dividends on top of any capital growth in the shares’ value. The amount of the dividend is down to the board of directors (who can decide not to pay a dividend and reinvest any profits in the company) and they will be paid twice yearly (announced at the AGM and six months later as an interim). Dividends are always declared as a sum of money rather than a percentage of the share’s price. Although dividends automatically receive a 10% tax credit from HM Revenue & Customs (HMRC), which takes the company having already paid corporation tax on its profits into account. Dividends are classed as income and, as such, are liable for personal taxation and so shareholders have to declare them to HMRC.
A term applied to raw materials (gold, oil) and foodstuffs (wheat, pork bellies) traded on exchanges throughout the world. Since no one really wants to transport all those heavy materials, what is actually traded are commodities futures contracts or options. These are agreements to buy or sell at an agreed price on a specific date. Because commodity prices are volatile, investing in futures is certainly not for the casual investor.
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.