Stock Picks | The BnB Fund - UK Edition

12th Oct '24 by BnB

46 comments 2892 reads

Here is the final section of my fund breakdown. I expect it to be met with considerable indifference given the familiarity with which most readers will enjoy with the names in question. Suffice to say that it is my assemblage of the Best of British within the confines of my investing universe. And it remains consistent with my search for companies with exceptional operating numbers and powerful moats. In my opinion, there is not a single bad company and barely a recovery story in here. And only a couple of traditional value plays. These are all highly profitable or extremely fast growing segment winners. The only question (and unknowable) is what price investors will attribute to them in the future and whether that makes them attractive today. Broadly speaking, the more powerful the moat, the greater the likelihood that a purchase this month will deliver good returns to investors irrespective of short term valuation questions. Hopefully the fund meets that remit.

Readers will note that a lot of the positions are relatively recent or even brand new. This reflects the fact that my initial focus, in building the fund, was on larger and frankly superior companies with truly global reach and powerful moats. More recently, I have turned to the UK for its more cyclical opportunities in areas such as retail and building products. And because of the existence of growth companies in segments where it is harder to research small cap US equivalents. From my perspective, I do not see any egregious overvaluation today across the entire UK fund. And that opportunity has been enhanced by recent volatility in the AIM market. As a consequence I have been increasing exposure to the UK with several new holdings this month and I have another in prospect. Of course, the budget at month end could deliver even greater value within small and mid caps and I would expect to further increase UK exposure in that eventuality at the expense of top-slicing US equities which I deem priced close to perfection today.

Anyway, I hope the list is of interest and am ready to answer any questions. Happy reading and have a good weekend.

UPDATE: I have added my estimation of the intrinsic value (IV) of each of these shares. This has been done using my forecast of the 7-10 yr CAGR in earnings and on the assumption that bond…

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John LA

14th Oct '24

Dear BNB thank you for sharing your portfolio and your erudite reasoning for holding, I do hold 12 and have held a further 8 in the past. Reading reviews in stockopedia have made me realise the UK is blessed with some fantastic world class companies, operating at the cutting edge. I have tended to invest in EFTs and have some legacy holdings seriously under water. Time for me to break out, be more decisive and buy more of the best of British.

I do wonder if they are missing a string to their bow, in Africa most payments are made though mobiles, the likes of Airtel also the banks themselves allow payments to mobiles. Its an expanding market

BnB

Note that I have now added my estimation of intrinsic value for each of the discussed stocks with a handy reference to today’s price. Generally speaking, the higher the uncertainty, the bigger the gap there is to close, but also the higher the risk that the figure will not be met! It’s just a guess, after all.

timarr

RE: Wise (LON:WISE)

Yes, but that's domestic payments which is not how Wise make their money.

Mobile money services across Africa are prevalent because of the lack of payments infrastructure (e.g. card payment networks, PoS terminals, etc) . M-Pesa in Kenya was the first such solution, allowing payments via the mobile network run by Vodacom rather than through the banks. That's now been replicated across a lot of the sub-Saharan countries.

The challenge with those networks is cashing in and out. Where there's no effective branch / ATM network then an agency model, where local small businesses effectively act as the cash handling mechanism, is the most common model. Running an agency network, with all of the associated compliance, is a complex and specialised activity that has no scaling benefit to an international player such as Wise, whose primary expertise is in cross-border payments, generally to less exotic countries where the remittance flows are much higher.

In fact, in Africa Cab Payments Holdings (LON:CABP) is probably one of the strongest cross-border payment operators largely due to the historic relationships deriving from Crown Agents Bank. AFAIK they have been integrating into some of the African mobile money operators to allow an end to end transfer (e.g. directly from a UK bank account to a mobile money account in the relevant African country).

For Wise (LON:WISE) this would be niche, end-network business. If it wasn't they have would have already bid for Cab Payments Holdings (LON:CABP) although I note the recent bid for them from Stonex (NSQ:SNEX) seems to have been greeted with wild indifference.

organictrader

Thanks BnB

A great read, Thank you. I did just notice a typo in your stated IV for Ashtead Group...

Ashtead Group - 2019, 197%

SP £57.18 IV £10.17

Ooops! Corrected now. Thank you for paying such close attention. I’ve got to say I was surprised by this one. Seems a big gap up. But the formula won’t work for every company and sector. It’s based on a projection of 8.75% pa earnings growth for Ashtead (LON:AHT) over the next 7 years. That’s well below the long term run rate.

Thanks for clarification, your right it is largely a domestic market, developed to meet the circumstances as you describe. I find it interesting how small sums can be transferred to mobiles instantaneous over vast distances where it can make the difference of a meal or going hungry.

portugull

BnB thanks for a superb post which I read very carefully. So much to like.

I hope you do not mind me mentioning a typo re Gulf Marine Services (LON:GMS) which I hold. The SP is 16.75 pence not £16.75.

Well spotted. And thanks for allowing me to correct the error.

stegga1000000

Why not Align Technology (NSQ:ALGN) in your US fund?

I already have a decent position in their more broadly-focused competitor, whose long term track record is more reassuring and whose IP and brand offer a wider moat. I’m not looking for more exposure.

15th Oct '24

Thanks for the reply.

Albertos

Brilliant post BnB.

I've got quite a lot of these on my watchlist.

I'd probably have quite a few in my portfolio but I'm over 80% in cash and this will increase if any of my minuscule holdings start to drift.

I've, rightly or wrongly, decided the general situation is too risky at the moment. UK budget, US election, war in Europe, escalation in Middle East tensions, what is going to be the Israeli response to Iran etc, etc ............................

So just taking a breather at the moment and accruing the interest.

I realize this is not a popular strategy, but I had a good first half and I decided to bank it and wait to see what happens with a view to picking up bargains. (Or,to be frank, accepting I might be looking back with regret, but on the other hand, not having taken the risk)

Done it before, will probably do it again, and on balance it has worked for me. We'll see this time.

Anyone else being this cautious?

Graham Wells

Hi BnB,

I'm surprised you haven't got National Grid (LON:NG.) in your UK portfolio?

They're reasonably priced and have a pretty decent moat. Also they're going to invest some serious money over the next decade to be able to carry the increased demand and load on the grid.

welcome your thoughts........?

Graham.

16th Oct '24

I don’t like utilities as investments. The only one I hold is Veolia for its combination of water and waste exposures. They are more exposed to political risk and the investment case often centres around the dividend, where I’m more focused on reinvesting for growth. NG has double the political risk, although it is also twice dispersed. And I have a lot of exposure to electrification as a theme through large positions in much higher quality enterprises, like Schneider Electric SE (EPA:SU) and Eaton (NYQ:ETN. So, all in all, NG doesn’t make the cut.

Monty Carlo

I'm a bit late to the party - would second some of the names already mentioned such as Spectris (LON:SXS), Renishaw (LON:RSW) etc.

Interestingly, there is less overlap between our UK portfolios than our US portfolios - possibly because you hold more European names directly (the withholding tax drives me up the wall with many direct European holdings).

You seem to have have a small cap bias in the UK which may be down to your European holdings, or you are just having fun ;-)

Others you may wish to look at:
Qinetiq (LON:QQ.) - cheaper than BAE Systems (LON:BA.)
Bunzl (LON:BNZL)
Compass (LON:CPG) (you may prefer Sodexo)
Computacenter (LON:CCC)
Next (LON:NXT) (yes, I know, but I've had meetings with Wolfson & the reports & accounts reflect the man)
Rotork (LON:ROR) , for your Spirax (LON:SPX) proceeds. Serve them right for nicking the Croda International (LON:CRDA) FD.....
Ferguson Enterprises (LON:FERG) - not really UK
Cranswick (LON:CWK)

I am comfortable with National Grid (LON:NG.) and SSE (LON:SSE), although more as ballast instead of corporate bonds, rather than for capital appreciation. I also hold some of the life/pension insurers (where employment has taken me inside the black box) . I can live with a 10% yield compounded.

Then if you want to dabble in financials:
Oakley Capital Investments (LON:OCI) , HgCapital Trust (LON:HGT) , Intermediate Capital (LON:ICG) and perhaps the steadier Pantheon International (LON:PIN) and Harbourvest Global Private Equity (LON:HVPE) if you want a spread.

Where might I disagree?
Relx (LON:REL) is a bit of a conundrum to me as I've always found Bloomberg to be well ahead of them whenever their products overlap. And Nick Train loves it, which worries me as well!

Hi MC

I broadly agree on Spectris and Renishaw. But one can only have so many positions on a given theme and I see Oxford Instruments as the pick of the bunch together with Judges to sit alongside multiple overseas counterparts .

The remainder of your suggestions belong to areas where, as a matter of strategy, I do not invest: banks, insurers, food processing, defence (other than obliquely) etc.

I do wish I had bought Next at the lows however. I saw the opportunity and failed to act, more fool me. Wolfson is a class act.

The problem with selling is that you are actually only taking the first of 2 decisions...the 2nd being when to buy back again.

It is very difficult indeed to buy shares you sold at a lower price not long ago, and the 30 day CGT rules complicate matters further.

What I do in my feckless moments of weakness is to delay reinvesting my dividends. I'm often wrong on market timing so that limits how much damage I can do!

Mark Carter

20th Oct '24

Many thanks, BnB. What an excellent write-up, with good poster comments, too. Well done chaps!

21st Oct '24

You might want to take a look at Gamma Communications (LON:GAMA) too.

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