AXA Framlington Fund Manager George Luckraft caught up with DirectorsTalk for an exclusive interview to discuss well performing stocks for 2015 and 2016 prospects. Stocks discussed include Pendragon PLC (LON:PDG), Topps Tiles Plc (LON:TPT), Alumasc Group plc (LON:ALU), Sigma Capital Group Plc (LON:SGM), ST Ives PLC (LON:SIV), Regional Reit Ltd (LON:RGL) and NewRiver Retail Limited (LON:NRR)
Q1: George, if I can start by asking which of your investments did well during 2015?
A1: In 2015 there was quite a good feature of various small cap holdings doing well with a wide range of sectors. So we had a couple of stocks related to the UK consumer, Pendragon PLC and Topps Tiles Plc, which are strong, Alumasc Group plc which is construction related and one that is fairly topical at the moment, Sigma Capital Group Plc, which is doing a build out of private rented sector properties, did well last year, the share price nearly doubling.
Q2: What are your thoughts for prospects for 2016?
A2: Well I think at the moment the dominating influences are what’s happening in China, the currency and the devaluation they’re doing, particularly against the US dollar to try and keep the currency competitive through what’s happening in their economy and that is potentially driving deflationary forces round the world. On top of that you’ve got continued weakness on the commodity sector, both oils and the hard commodities, we should also reinforce that they are interlinked, at the moment that is driving quite a lot of worries in the market and it’s particularly relevant to the UK markets, given the high weightings in the oil and gas sector, unless they’re in the commodity sector at the moment, but also the likelihood of some dividend cuts particularly in the commodity related one. The other aspect for the UK will be, at some stage, the Brexit vote, the timing of that is unclear, but that will create some uncertainty as and when we get to that and with the potential for some currency weakness around that in sterling but that one will be, if we come out, that will be much more relevant.
Q3: What stocks do you think will perform well in 2016? Perhaps if you could share your thoughts on two to three small caps and one to two mid-large caps?
A3: Certainly, I think Alumasc Group plc, which was good last year, I think has good scope to continue to do so there, supplying the UK and overseas construction markets, their order books are well up and it’s still trading on a very modest rating of around ten times earnings with good growth on there so I think that one looks particularly interesting. Another one where good growth again on a modest rating is St Ives PLC where they are building up a strategic marketing business through a series of acquisitions, the management team is coming in there, all buying into the culture and it’s a business that’s moving away from a traditional business to a more exciting area which again doesn’t seem to be reflected in the stock market. One other small one which is with a good yield, Regional Reit Ltd which is a UK property one, just came to the market in the last three months or so that’s got a prospective yield of around 7% and should be trading at a decent discount to its net asset value. More mid-cap ones, NewRiver Retail Limited looks interesting, just for their good running yields, mid 5.5, they own UK property portfolio for the retailers and have bought them generally very cheaply and there’s an interesting technical issue that they’re currently trading on AIM and will go to the main markets middle of this year which will take them into the mid-cap index and that’s likely to create a lot of technical buying in the stock as the index funds have to buy and that could well squeeze the stock considerably higher.
Q4: Brilliant. Ok, why then would an investor invest with you and your funds?
A4: I think, first and foremost, it’s important for anyone, investors, to know that my money, my family money is very much allocated into this fund so my pension is very much dependant on that and I think that’s a crucial first starting point. The other aspect of it is this is a very diversified portfolio, a long way away from the benchmark of the All-Share Index where around 85% of the All-Share Index is represented by the FTSE 100 and I only have around 35% weighting in that area so I’m much more exposed to smaller mid-cap, particularly small cap, which I think is the inefficient part of the market, where I think over time you can add some significant value by knowing these stocks better than everyone else. It also has the added advantage of making the income generation from a very diverse list of names whereas in the UK market that is very much concentrated in ten not very large stocks which I feel rather uncomfortable being exposed to that.
