Shares to buy, hold or sell: Stephen Bailey
Stephen Bailey's buy, BT Group, is also his largest holding - it currently accounts for 5.4% of his portfolio. Having bought and sold the stock in the past, Bailey bought firmly back into it after BT made a surprise purchase of television rights from Sky in 2012, which he says created a 'value opportunity', as the share price dipped on concern over the move.
With BT shares currently trading at close to £4, Bailey has already doubled his original £2 a share investment. However, he believes there is plenty more upside potential and has recently increased his holding. He claims BT's 'quad play' offering – which consists of fixed telephone line, mobile, television and broadband services – is particularly attractive, as it offers the opportunity to cross-sell to a growing customer base.
Moreover, Bailey believes the firm's planned acquisition of mobile operator EE should also prove a significant boon: "The acquisition of EE makes a lot of strategic sense. It is the largest mobile provider in the UK and has already invested heavily in its network. We think this will enhance and strengthen BT's position in the UK market," he says.
Bailey has faith in BT's management. He says it has been able to cut costs successfully while nurturing the 'top line', which is starting to show signs of strong growth again. He expects BT, currently priced as an 'expensive value' stock at 17 times earnings, to re-rate as a growth stock in the near future.
HOLD: ASSURA GROUP
The firm, established in 2003, acquires, develops and runs a portfolio of medical centres and GP surgeries across the UK, with a view to expanding its reach throughout NHS primary care facilities.
He says: "Politically, it's an area that has multi-party backing, and that's what we're looking for. We're very much aware of political risk and where the potential pitfalls are. This is an area we're going to see much more enthusiasm for over the next couple of years, and Assura is an industry leader."
Since Assura re-established itself as a Reit in April 2013, it has raised more than £100 million in share placements, while its share price has risen from the 35p a share at which Bailey bought in, to just over 51p today.
However, this leaves the share price at a 13% premium to Assura's net asset value, which is currently around 47p a share. That's why Bailey is holding rather than buying the stock, despite an attractive 4% dividend yield. He says: "We're happy to back it for the longer term and it's managed very well - manager Graham Roberts is formerly of British Land, so he knows what he's doing. If we saw the stock coming back sub-50p, we would be an active buyer."
SELL: BHP BILLITON
Bailey sold FTSE 100 miner BHP Billiton last summer when, he says, he began to doubt the ability of the big mining firms to live up to their dividend promises. Although a number of firms, including BHP, had made progress with their well-publicised cost-cutting programmes, Bailey saw the declining price of major minerals as a warning sign.
"In a supposed global recovery it is somewhat concerning when you see the price of copper and iron ore constantly falling. We just started to wonder whether perhaps we would end up in a situation where the companies were unable to fulfil their dividend promises, despite cutting their bottom lines," he says.
Having sold at £18.50 a share in June, it seems Bailey chose his moment well, as a free-falling oil price sent BHP's shares as low as £12.76 in December. Over the long term, however, he says he remains positive on the big miners and would not rule out buying back in at the right time.
"We're very keen on both BHP and Rio Tinto for the longer term, as most of their operations and assets are in politically stable areas of the world and therefore deserve a premium rating compared with assets from certain parts of Africa or the former Soviet Union. For the moment though, the jury is out, and the rates of dividend growth people have been expecting might disappoint," Bailey says.
This feature was written for our sister publication Money Observer
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.
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%.
Investment trusts are companies that invest money in other companies and whose shares are listed on the London Stock Exchange. As with unit trusts, private investors buying shares in an investment trust are buying into a diversified portfolio of assets (to reduce risk), which is managed by a professional fund manager. Investment trusts differ from unit trusts in two important ways: they are listed on the stockmarket and so are owned by their shareholders and are closed-ended funds with a finite number of shares in issue. This means the share price of investment trusts might not reflect the true value of the assets in the company (known as the net asset value, or NAV) and if the NAV value of a share is £1 and the share price in the market is 90p, the trust is said to be running a discount of 10% to NAV. But this means the investor is paying 90p to gain exposure to £1 of assets. Investment trusts can also borrow money and use this money to buy investments. This is known as gearing and a geared trust is thought to be more of an investment risk than an ungeared one.
A market-weighted index of the 100 biggest companies by market capitalisation listed on the London Stock Exchange. It is often referred to as “The Footsie”. The index began on 3 January 1984 with a base level of 1000; the highest value reached to date is 6950.6, on 30 December 1999. The index is “weighted” by how the movements of each of the 100 constituents affect the index, so larger companies make more of a difference to the index than smaller ones. To ensure it is a true and accurate representation of the most highly capitalised companies in the UK, just like football’s Premier League, every three months the FTSE 100 “relegates” the bottom three companies in the 100 whose market capitalisation has fallen and “promotes” to the index the three companies whose market capitalisation has grown sufficiently to warrant inclusion. Around 80% of the companies listed on the London Stock Exchange are included in the FTSE 100.
Everything you own: all your assets (property, cars, investments, savings, insurance payouts, artwork, furniture etc) minus any liabilities (debts, current bills, payments still owed on assets like cars and houses, credit card balances and other outstanding loans). When you’re alive this is called your wealth; when you’re dead, it becomes your estate.
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.