Threadneedle Investments Fund Manager Matthew Evans caught up with DirectorsTalk for an exclusive interview to discuss the investments that did well in 2015 & thoughts on 2016 prospects. Stocks discussed include Paysafe Group Plc (LON:PAYS), Fevertree Drinks PLC (LON:FEVR), Xchanging Plc (LON:XCH), GB Group plc (LON:GBG) & Marshalls plc (LON:MSLH)
Q1: If I can start by asking, which of your investments did well during 2015?
A1: Well we had a good year in 2015 & it was driven by a good range of stocks actually which we were quite pleased about. So we had some very good performance out of a company called Paysafe Group Plc; which you might recall was Optimal Payments but changed its name late last year post a deal with Scrill, another payment provider, very strong in the wallet space & that was a very accretive deal, so that’s proved to be a very good performer for the fund. At the other end of the spectrum we had a company called Fevertree Drinks PLC which produces premium tonic waters & mixers so gin has been a key growth area in certain markets & Fevertree have really got on top of this trend & managed to develop a very well branded range of premium mixers & it’s gone down very well. That IPO’d last year & its performance has been exceptionally strong & as they move globally, they’re already in more than 50 countries, we feel that performance can go well but we are keeping a close eye on the valuation. We’ve also benefited from a company called Xchanging Plc later on in the year, it had a chequered year with some ups & downs as it progressed from a recovery story & they reinvested some profits from their core business into some new areas of development where they’re looking to develop more technology-led solutions in the insurance space. They weren’t able to deliver quite on target but we took a view that they would deliver in time & the shares fell to what we considered was a far too low level with the shares below a pound & on a very lowly valuation at sub 10 times earnings. We bought quite a lot in the fund in the back end of the year & it’s since actually benefited from numerous bids, Capita initially & it’s now being bid for by a company called CSC from the US at 190 pence, that bid is still ongoing but we would expect that to close sometime this year. They are three of our top performing stocks in 2015.
Q2: What are your thoughts on prospects for 2016?
A2: Well I think we feel 2016 could be a very interesting year ahead & we expect some increased volatility. I think that’s partly on the realms of some themes have played through in quite a lot of details over the last couple of years with industrials & overseas earners being sold off a bit through 2015 & domestics, including house builders & some support service companies, performing pretty well. So those domestic companies are now much fuller valuations for their prospects & I think although we expect low interest rates for longer, we can see the UK domestic economy now perhaps being flat, so we’re not overly worried that we’re going into a recession anytime soon but we do think there could be some volatility & with some global macro & geopolitical concerns, we would expect there to be more volatility in the market this year. Net-net, we’re very comfortable that there’s some interesting opportunities in the small cap universe for those people who can spend the time & do the research to pick good fundamental story’s that can perform in a variation of market environment.
Q3: What stocks do you think will perform well in 2016?
A3: We spent some time assessing this to try & get a good feel of the kind of stocks, are there any themes that we feel could be particularly interesting. I think we’ve taken a view that some of those domestic names, perhaps where more cyclical & where returns could get competed away, could struggle a little bit more in 2016, not that they could struggle but purely on the basis of valuation so we think pricing power is going to become increasingly important throughout 2016. We’re also looking for those companies that we feel could have some uncorrelated growth i.e. not wholly dependent on a strong economic environment, & that’s driven us to names of stocks such as GB Group plc which we think is really benefitting from the increasing trend in global identity checking so they buy readily available data but because of their scale, they’re getting benefits of that scale. They have a very very well invested & very efficient platform which allows customers to log in & verify a customer’s details in real-time on a global basis & we think this is a fairly unique proposition & very well placed competitively. So it is companies such as GB Group we think could have a good year next year. Some potential other performers we could see, even in the UK environment, companies like Marshalls plc, which produce sort of aggregate pavings for retail & infrastructure build, could have another good year. Change in management there over the last couple of years has really reinvigorated that business & due to their focus, we think they’ve got potential to increase prices through this year which could be very positive for that business which has very high levels of operational gearing. So they’re the kind of companies we think could do particularly well, slightly uncorrelated to the market & have some specific niche positions.
Q4: Finally then, why would an investor invest with you & your funds?
A4: We believe that we set out to do very thorough & fundamental research, being part of Columbia Threadneedle gives us a very deep access to a broad range of skills from a global perspective which allows us to really understand some competitive environments, even for UK based small cap businesses. We think that really can stand us out but also we’ve got a very disciplined focus to our process & we run through that regularly with huge discipline & that ability to find fairly unique companies that deliver good return on capitals at very compelling valuations, I think can stand us out in what we think will be a more volatile & challenging year ahead.
