Valentine’s Day: The stocks and companies that have stolen City fund managers’ hearts
As it is Valentine’s Day, Morning Wire checked in with several City-based fund managers to reflect on the investments that have stolen their hearts in recent times.
For Ken Wotton, co-manager of the LF Gresham House UK Multi Cap Income Fund, Smart Metering Systems (SMS) stands out.
The company installs and operates smart meters and carbon reduction assets throughout the UK. The business serves the industrial, commercial and public sectors, and has particular expertise in servicing the domestic market.
“The company’s smart meter offering is hugely beneficial to domestic consumers, who can save on energy bills by gaining a better understanding of their energy usage – and wastage – in real time,” Wotton said.
“This enables them to form better energy habits and reduce costs – offering crucial relief to millions of UK households facing soaring energy bills,” he added.
From an investment perspective, SMS is a high-quality business with recurring revenue streams secured over the long term.
“The company plays an essential role in the UK government-backed deployment of energy efficient smart meters, which feeds into the broader theme of environmental sustainability and the country’s net-zero goals,” Wotton stressed.
“With the government’s plan to install smart meters in every home by 2024, the company SMS a lengthy runway for growth.”
Ken Wotton
Jacob Mitchell, founder and chief investment officer at Antipodes Partners, said he has got his eye on Seagate Technology, a provider of hard disk drives, an underappreciated part of the connected economy as the world becomes more data intensive.
“The hard disk drive sector endured a prolonged period of weak performance as other forms of data storage took market share in PCs and laptops, due to faster speeds,” Mitchell said.
Data centres
However, while demand for hard disk drives from PCs and laptops is shrinking, demand from datacentres for Seagate’s much larger mass data storage solutions has been growing rapidly.
In fact, data centres will account for the majority of Seagate’s revenue from next year, so it is a company pivoting from a zero-growth business to one that will see revenues grow by 3-10 per cent per year, he stressed.
“The company is valued at just 10x forward earnings, which is a very attractive multiple given secular growth trends around computer and data storage, improving competitive dynamics between the sector’s two leading players, and the quality of Seagate’s business and growth profile,” Mitchell noted.
Meanwhile, Hywel Franklin, manager of the Mirabaud – Discovery Europe Fund, said that Befesa, a German-listed industrial processing business focused on the management of waste materials, stands out for him.
He called the company “a pioneer” in the development of industrial processes for the circular economy and is an emerging global leader within the management of steel and aluminium waste products.
“Its raison d’être is to reduce the environmental impact of industrial waste by recovering valuable materials and reintroducing them into the production process,” Franklin said.
“While Befesa may not be classified as a large company, it is a clear market leader in European steel dust recycling, with a market share of 45-50 per cent,” he explained.
In the near term, the strongest growth contributor to the sector will likely be China.
“Demand remains in its infancy at present, but China has the potential to become at least the same size as the European market over time.”
Fund manager Hywel Franklin
“Over the next few years, as Befesa’s Chinese production capacity comes online, it will extend its position into new markets, helping improve circularity in construction globally,” he added.
Finally, Marek Poszepczynski, co-investment manager of the International Biotechnology Trust, shared with Morning Wire which investment got his full attention.
“Migraine is a debilitating disease that creates auditory and visual disturbances as well as severe pain for its sufferers, often multiple times a month,” he pointed out.
Referring to data from The Migraine Trust, Poszepczynski said up to 25m days of work and education are lost a year in the UK due to these attacks.
“The disease also places significant strain on accident and emergency departments,” he added.
“After many years of research, a new treatment mechanism, known as CGRP inhibition, has been proven effective. While injectable forms of this drug are already used to prevent migraines, US-based Biohaven Pharmaceuticals has developed a tablet called Nurtec ODT.”
“It recently received additional usage approval – not only for acute cases, but also for chronic cases and the prevention of migraines. This is much more convenient than patients having to self-inject or visit a nurse to receive medication,” Poszepczynski said.
“Following this breakthrough, the company has announced a $1.2bn licencing deal with Pfizer for ex-US rights for the compound. In addition, the company faces limited competition in an area that has not seen major progress for many years,” he concluded.