21st December 2015
A selection Fidelity International’s portfolio managers, highlight one stock they would most like to see in their stocking on Christmas day…
Alex Wright, Fidelity Special Situations & Fidelity Special Values plc
C&C is an Irish producer of beer, cider and soft drink brands. If cider is a drink you will be enjoying over the festive period, the chances are you will be purchasing it from C&C given it produces Bulmers and Magners.
Not only does C&C enjoy high brand loyalty, it’s also a cash company, operating in a market that should see structural growth internationally, including the US which is growing double digit. Moreover, it recently signed a long-term partnership agreement with the world’s largest American-owned brewer for the sale and distribution of its cider brands within the US.
The stock is trading at a very low valuation given this market environment and management’s continued commitment to more efficient use of the balance sheet. It could also be an attractive takeover target given its strong brands and increasing consolidation across the sector.
Angel Agudo, Fidelity American Special Situations fund
L-3 Communications, the counter-cyclical US aerospace systems and national security solutions firm, has the potential to deliver strong returns in the coming year. Within the defence sector, it has been delivering lower levels of profitability compared to peers in nearly all divisions and that is reflected in a relatively cheap valuation.
However, I believe L-3 Communications is now witnessing a turnaround as it is taking steps to improve profitability through consolidation of its activities and better usage of capital. Given this – and increasing M&A activity in the sector – I also view the company as a takeover target which provides further upside potential.
Jeremy Podger, Fidelity Global Special Situations fund
Delhaize, the food retailer with operations in Belgium, Greece and the US, is an example of an interesting corporate change investment opportunity. While the stock does not offer infinite upside, its merger with Dutch competitor Ahold should help realise significant synergies in both Europe and the US.
In my view, investors are likely to appreciate the restructuring and scale benefits the deal brings in the next 18 months or so. The company’s ability to deliver enhanced earnings in a relatively defensive sector, at a time when more cyclical parts of the market are facing more uncertainty, makes it particularly attractive.
Anthony Srom, Fidelity Asia Pacific Opportunities fund
Sands China is a casino operator in Macau. It has the highest exposure to mass market gaming and is set to benefit as revenue from this segment is growing faster than that of VIP gaming, which has been particularly hard hit by the government’s anti-corruption drive. This has pulled down the valuation to a level which offers an attractive opportunity given its longer-term positive fundamentals.
Its strong cash flows and relatively low capex translates in to a steady dividend, while Sands China is also looking to mirror the shift towards an integrated resort business model that its parent Las Vegas Sands undertook. A greater focus on conventions, concerts and other leisure activities will provide a more robust and diversified revenue stream.
Alberto Chiandetti, Fidelity European Opportunities fund
Bank of Ireland is the leading bank in Ireland’s highly consolidated market. Given its dominant position, the company stands to benefit from a continued strong recovery in the domestic economy (with competitive labour costs and corporate tax rates), as well as an accelerating real estate cycle. Moreover, around 45% of its business is in the UK, where the bank is a challenger.
Looking ahead, rising real asset prices and low interest rates will improve the non-performing loan book and facilitate the creation of an excess capital buffer that could be repaid to investors through dividends as soon as 2016. Having already successfully rebuilt its balance sheet, I think the bank will be able to achieve a higher Return on Capital than consensus expects through superior retained earnings.