Buy, hold or sell: Wouter Volckaert

13 January 2015


Since taking over Henderson Global from veteran manager Brian O'Neill in February 2014, Volckaert has made a number of new additions to the trust, including his third-largest holding at 2.9% of the portfolio, Crown Holdings.

Volckaert explains that the US metal packaging manufacturer's main attraction is its defensive nature, combined with a valuation well below that of similar stocks. That is due to its listing in the materials rather than the consumer defensive sector.

"It's a defensive stock - the last thing you cut in a recession is baked beans; yet it's trading at 12.5 times next year's earnings, compared to high teens valuations for other defensive stocks," he says.

Volckaert also sees strong growth potential in Crown following its acquisition of Spanish packaging firm Mivisa in 2014 and Mexican metal can manufacturer Empaque in 2013, adding that the purchases are likely to boost earnings growth by 20 to 30% over the next two to three years.

Additionally, he says the firm has solid prospects within emerging markets: "In China metal-can penetration is still below 10%, but it's growing. So while the Unilevers of this world are suffering as emerging markets go down, these guys just reported fantastic results in China and even Brazil, as they're growing from such low penetration levels."

Over the next three years Volckaert predicts Crown's share price will rise from its current $49 (£31) level to around $75, representing growth of over 60%.


Volckaert first bought hard drive manufacturer Western Digital when he was at Morgan Stanley in 2012, when the stock was trading at four times earnings with a 25% free cash flow yield. Today the firm is trading at 12 times earnings with a 10% free cash flow yield, but he still believes the stock is "cheap".

Over the past few years Western Digital has suffered from negative investor sentiment due to the penetration of iPads, which use significantly more expensive 'flash' drives. However, Volckaert believes this could be a tailwind, rather than a headwind, for the firm.

"These companies are priced to go into destruction, but the thing is that whenever you take a picture on your iPad and you put it on Facebook, you have to save that data somewhere - and that's usually in the cloud, which is in fact big warehouses full of servers that store their data on hard disks," he says.

Secondly, as the hard disk industry has consolidated from over 30 firms a decade or two ago to just two today - Western Digital and Seagate - Volckaert sees potential for Western to significantly increase its profit margin as hard-drive supply becomes constrained and the firm gains more pricing power.

Over three years the manager sees around 25% upside in Western's share price, which currently stands at around $104. The holding accounts for 2.8% of the portfolio.


Having inherited tobacco manufacturer Philip Morris from O'Neill, Volckaert says he was happy to maintain his position initially because of over-selling within the tobacco industry on fears over rising taxes, the popularity of e-cigarettes and a slowdown in emerging market consumption.

However, unlike a number of the UK's growth and income managers, most notably Neil Woodford, Volckaert is becoming increasingly bearish on tobacco stocks and so sold his holding in Philip Morris at the end of October 2014.

"Philip Morris did well this year, but we're now at the point where valuation is up to 17 times earnings and tobacco companies are starting to face real headwinds," says Volckeart.

At a stock-specific level, Volckaert says Philip Morris's predominantly non-US exposure may prove troublesome as the US dollar rises and other currencies weaken, as its earnings will be significantly reduced through the foreign exchange process.

"You have a company that is low-growth to begin with; when foreign exchange becomes a major headwind, you'll quickly go into negative growth. In 2015 we may also be worrying more about the US raising interest rates than we are now, and so dividend stocks may come under pressure. In the future I think investing in tobacco stocks should come with a health warning," Volckaert says.

This feature was written for our sister publication Money Observer

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