Nick Train is often referred to as ‘Britain’s Warren Buffett.’ The portfolio manager employs a very similar investment management approach to Buffett, investing in a small number of companies that have strong competitive advantages, substantial cash flows, high profit margins and excellent returns on equity.
Today, I’m profiling two of Train’s top holdings and looking at why the portfolio manager rates these stocks so highly.
Train has stated in the past that he likes financial services companies that will benefit from rising share prices over time. One such company that he’s clearly bullish about is Hargreaves Lansdown (LSE: HL). At the end of December, it was the fourth largest holding in his UK equity fund, with a weighting of 8.5%.
I can see why the fund manager likes the stock. Hargreaves Lansdown is a leader in its field, with a high market share and a strong client retention rate. The company generates strong cash flows, and has a high operating margin (68%) and an excellent return on equity (76%). In short, this has Buffett written all over it.
Hargreaves released interim figures this morning, and the numbers look excellent. Underlying net new business during the period was £3.34bn, taking assets under administration to £86.1bn, up 9% since 30 June. Profit before tax for the period rose 12% and the company hiked its interim dividend by 17%.
So are the shares worth buying right now?
Personally, at the current valuation, I believe Hargreaves Lansdown shares look a little expensive. For FY2018, analysts expect full-year earnings of 50.1p per share, which at the current price, places the stock on a forward P/E ratio of 36.3. On that kind of ratio, I’m just not seeing much value on offer.
Hargreaves Lansdown is definitely a stock I would like to add to my portfolio at some stage, however for now, it will remain on my watchlist.
Another FTSE 100 stock that Train is bullish about is Relx (LSE: RELX). It’s currently the largest position in his UK portfolio, with a 9.8% weighting. Formerly known as Reed Elsevier, the company publishes a large number of academic journals and provides a range of information-based analytics tools. It has worked hard in recent years to make the transition from traditional print publishing towards online subscriber-based information and data services, with digital revenues now accounting for around 75% of revenues.
Like Hargreaves Lansdown, the stock has ‘Buffett-esque’ attributes, such as strong cashflows, a decent operating margin (25%) and an excellent return on equity (67%). The company also appears to have solid growth momentum at present, with revenues and net profit forecast to rise 9% and 25% respectively for FY2017.
Since late November, the shares have taken a bit of a tumble, falling from around 1,800p to under 1,500p today. At the current price, the forward P/E is 17.2 and the prospective yield is 2.9%. At those metrics, the stock could be worth a closer look.