Great post. I think that November is a great month to look for underperformers of the year because a lot of investors are offloading their losers for either tax or window dressing reasons before closing the books in December. Among the stocks you mention, I like DOCS and BBRY which in my view have a decent brand and would be expected to bounce back. I thought VTY got a bit hyped earlier this year and avoided the name. Will do some research on S4 which I am not familiar with.
Hey Carsten, hope you're well. Yes, Burberry and DOCS are certainly iconic brands. It's hard for me to imagine them going away, but also difficult to come to normalised numbers for the financials. I certainly recommend looking at S4 if you hate money as I do😅
Thanks, I will have a look. I think Millicom has a stake in them now too, so will be definitely worth the time. I remember hearing the Helios team are excellent operators at the time of the Fairfax Africa deals.
British companies are, generally, poorly run. Capital allocation is awful. Dividend payments are prioritized over all else. Growth is impacted as a result.
When I hear analysts argue that the UK is so undervalued relative to the US, it tells me more about the analyst than the UK market. It is largely cause and effect.
It is due to:
- a large number of low quality investors chasing income (mostly institutional investors)
- low quality management with a poor grasp of corporate finance/business administration pandering to the wants of the low quality investors
- low quality advisors/brokers offering bad advice to corporate leaders
When you have a good company with poor leadership, it is the reputation of the leadership that prevails.
I'm not a fan of black and white opinions, so while it is true that UK Plc is generally lower quality than US Corp I'm more interested in what is an appropriate discount.
I think it's fair to say you will find many UK businesses for less than half of their US peers valuation and that the spread is near historically wide. This is too cheap, in spite of the problems you raise.
I'm not proposing buying the FTSE index or that the UK should ever trade on par. Just that an investor will do very well if they pick the right stocks and UK sentiment improves a little.
I would argue that the issues at Vistry are, in fact, one-off in nature and given all the changes the company has gone thru (Countrywide acquisition, strategy shift) it's not that surprising to have some hiccups such as the ones we see now. I would weight the senior managers' long history of success far more highly than this recent event when forecasting the future. Shares are trading around book value, even though this is a company that should see ROCE trend far north of 30% over time. Time to be greedy (fd: I own shares)
There's no better signal than the CEO buying in size. I don't know it as well as I would like, but I'm very intrigued by what Vistry are doing with their capital intensity. Thanks 👍
Also, did you read David Einhorn's most recent letter? He has an interesting discussion on why he prefers asset heavy home builders such as Green Brick as opposed to the NVR style model that Vistry seems to be following too.
Missed this but insightful. I think both asset light & asset heavy can both be interesting. Asset light can be very attractive if there is a third party like a government that provides the land cheaply (potential of Vistry & Heijmans). I would argue the asset light business model has become a bit too popular in the US so I would not buy into such businesses there.
Asset heavy can be very interesting but primarily when you think the prices of the asset heavy stuff will increase and you can buy them at a discount (Melcor Developments & CTP).
Great post. I think that November is a great month to look for underperformers of the year because a lot of investors are offloading their losers for either tax or window dressing reasons before closing the books in December. Among the stocks you mention, I like DOCS and BBRY which in my view have a decent brand and would be expected to bounce back. I thought VTY got a bit hyped earlier this year and avoided the name. Will do some research on S4 which I am not familiar with.
Hey Carsten, hope you're well. Yes, Burberry and DOCS are certainly iconic brands. It's hard for me to imagine them going away, but also difficult to come to normalised numbers for the financials. I certainly recommend looking at S4 if you hate money as I do😅
You should have a look at Helios Towers. Their well run and have traded down recently.
Thanks, I will have a look. I think Millicom has a stake in them now too, so will be definitely worth the time. I remember hearing the Helios team are excellent operators at the time of the Fairfax Africa deals.
British companies are, generally, poorly run. Capital allocation is awful. Dividend payments are prioritized over all else. Growth is impacted as a result.
When I hear analysts argue that the UK is so undervalued relative to the US, it tells me more about the analyst than the UK market. It is largely cause and effect.
It is due to:
- a large number of low quality investors chasing income (mostly institutional investors)
- low quality management with a poor grasp of corporate finance/business administration pandering to the wants of the low quality investors
- low quality advisors/brokers offering bad advice to corporate leaders
When you have a good company with poor leadership, it is the reputation of the leadership that prevails.
For more, take a look at: https://rockandturner.substack.com/p/why-is-uks-arm-holdings-listing-in
This too shall pass!
I'm not a fan of black and white opinions, so while it is true that UK Plc is generally lower quality than US Corp I'm more interested in what is an appropriate discount.
I think it's fair to say you will find many UK businesses for less than half of their US peers valuation and that the spread is near historically wide. This is too cheap, in spite of the problems you raise.
I'm not proposing buying the FTSE index or that the UK should ever trade on par. Just that an investor will do very well if they pick the right stocks and UK sentiment improves a little.
I would argue that the issues at Vistry are, in fact, one-off in nature and given all the changes the company has gone thru (Countrywide acquisition, strategy shift) it's not that surprising to have some hiccups such as the ones we see now. I would weight the senior managers' long history of success far more highly than this recent event when forecasting the future. Shares are trading around book value, even though this is a company that should see ROCE trend far north of 30% over time. Time to be greedy (fd: I own shares)
There's no better signal than the CEO buying in size. I don't know it as well as I would like, but I'm very intrigued by what Vistry are doing with their capital intensity. Thanks 👍
Also, did you read David Einhorn's most recent letter? He has an interesting discussion on why he prefers asset heavy home builders such as Green Brick as opposed to the NVR style model that Vistry seems to be following too.
Missed this but insightful. I think both asset light & asset heavy can both be interesting. Asset light can be very attractive if there is a third party like a government that provides the land cheaply (potential of Vistry & Heijmans). I would argue the asset light business model has become a bit too popular in the US so I would not buy into such businesses there.
Asset heavy can be very interesting but primarily when you think the prices of the asset heavy stuff will increase and you can buy them at a discount (Melcor Developments & CTP).