I embraced this philosophy recently when I noted that lithium miners are starting to look less speculative and more like solid long-term investments. And I’m doing it again today as I consider McColl’s Retail Group (LSE: MCLS) despite possessing no sector expertise.

So why has McColl’s caught my attention? Because since August the share price has nearly halved to reach an all-time low. At the time of writing, it is trading at 19.7p, far below its 52-week high of 40.8p. Its current market cap is just £55m.

In February I stated that PayPoint was fighting fit for the future despite being over punished by investors for the perceived impact of the pandemic and that the stock would see a 65% appreciation during 2021. Since then, the stock is up more than 20% and has paid out a dividend with a yield of 4.5%. Today I would make the same prediction about McColl’s.

What is good about McColl’s?

On the face of it McColl’s looks solid. It has £1.26 billion of revenue and a gross profit margin of 23.9%. It operates over 1,300 convenience stores and newsagents that 22% of customers visit every day. Many McColl’s stores also have other community facilities. 1,300 McColl’s stores also offer bill payment counters, ATMs and parcel collection/return points (all of these extra services, incidentally, are provided by PayPoint).

A new vogue for working from home will likely increase demand for local convenience shopping, and McColl’s has already been expanding its position for some time. In 2016 the company bought 298 convenience stores from the Co-operative Group in a £117m cash deal. The acquired stores were profitable and, despite the transaction driving up McColl’s’ net debt, it gave the company greater exposure to the trend for ‘mid-sized local’ shopping, with the average co-op store acquired being 45% bigger than the average McColl’s store.

In another adept move, in 2017 McColl’s signed a deal with Morrisons to supply all of its stores; and in 2021 McColl’s extended this wholesale partnership by rebranding 300 of its stores to become ‘Morrisons Daily’ stores under a franchise agreement running to 2027. This franchise agreement has become a cornerstone of the future investment story for McColl’s.

So why has the McColl’s share price tanked?

Things started getting a bit tricky for McColl’s in August 2020. Net margins were already slim, and the impact of the Covid-19 pandemic meant that broker Peel Hunt cut its price target to 50p, down from 70p.

One year later when McColl’s reported interim results for the six months to May 2021 in August 2021, sales growth had slowed to just 1% and revenue was down 5.3%, with a net loss before tax of £2.1m. Those figures might not be thrilling, but it’s a respectable showing given the challenging circumstances of the UK coming slowly out of a long lockdown.

Net debt stands at £111m, mostly a legacy of the Co-operative Group deal and the cost of transforming McColl’s stores into Morrisons Daily format franchises, with 100 conversions due to be complete by the year end, which McColl’s says will have a payback period of 2-3 years.

But this is also where McColl’s has come unstuck. With relatively modest EDIT in good times, its wafer-thin net margin in the wake of post-Covid disruption has left it with little room to invest in store conversions from retained earnings, and no capacity to take on any further debt.  Given the importance of the Morrisons Daily store transformations, in August 2021 McColl’s was forced undertake a share placing to raise £35m to fund the program.

The timing was awful. Just one-month earlier, McColl’s had been forced to put out a statement to reassure investors that the prospective $8.7 billion takeover of Morrisons by a private equity group would not impact the existing wholesale or franchise agreements that McColl’s had already predicated its entire future investment story upon.

But shareholders remained sceptical. They took just 60% of the shares available from the share placing at an aggregate price of just 20p per share. The McColl’s share price tanked.

McColl’s: to buy or not to buy?

My view is that had the Morrisons takeover not emerged and created uncertainty about the business-critical wholesale and franchise agreements, then investors would have stuck with McColl’s and remained confident that the prospective returns of investing in the ‘Morrisons Daily’ conversion strategy was worth the dilution of a share placing. I expect that the placing itself would also have gotten away at a far more attractive price per share.

I expect that the Morrisons wholesale and franchise deals will remain secure even after Morrisons is taken over, and perhaps in time we might even see Morrisons confirm this in a public statement. That would be a boon for the McColl’s share price. The combination of events and timing has stymied the momentum of McColl’s, but I believe the company is coming out on the other side and that from now on, the only way is up for the share price.

I expect that an investment would appreciate by at least 50% during the next 12 months, with the post-Christmas trading update being a key driver of better investor sentiment.

The post This UK stock just hit an all-time low. Is it time to buy? appeared first on The Motley Fool UK.

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Tej Kohli has no position in any company mentioned. The Motley Fool UK has recommended Morrisons. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Tej Kohli is a technologist and investor specialising in artificial intelligence, robotics, biotech and esports. He is best known for his mission to combat poverty-induced blindness at the Tej Kohli Foundation and the Tej Kohli & Ruit Foundation. Tej Kohli regularly blogs online as #TejTalks and is very active on Twitter as @MrTejKohli.

Lithium is a key ingredient for the lithium-ion batteries of EVs.  In 2010 there were only 17.000 EVs on the world’s roads.  By 2020 the number had climbed to more than 10 million.  And whilst overall EV penetration remains low, accounting for just 4% of light vehicle sales last year, Bloomberg predicts that by 2037 EVs will account for more than 50% of new vehicles sold globally.  In Q2 of 2021, Tesla alone delivered a record 201,250 EVs globally.

Lithium has a range of pricing markets, but generally the price of battery grade lithium has more than doubled since December 2020 as EV demand has pushed supply-demand into deficit.  Lithium price rises show no sign of abating.  China has invested $60 billion to support plans to transition completely to EVs by 2035, and already buys up the vast majority of lithium produced by the world’s largest producers, Australia and Chile.

I predict that carmakers will soon be chasing lithium supply and that ‘home grown’ battery-manufacturing capacity will become a hot-button issue for European Governments.  I also predict that European OEMs will increasingly seek to reduce their supply chain emissions by sourcing their lithium locally. 

2020 already saw Norway become the first country in the world where more EVs were sold than fossil fuel cars.  In the United Kingdom, 31,800 battery electric cars were sold in in the first three months of 2021 alone, accounting for 7.5% of UK car sales.  During that same quarter 30,500 EVs were sold in France and another 64,700 were sold in Germany. 

Bacanora looks likely to be the first UK-listed lithium miner to reach production and has already begun to build mining facilities at the Sonora clay lithium deposit in Mexico.  Bacanora plans to derive a battery grade lithium product from its own processing facilities that it will then sell directly to battery manufacturers rather than through exchanges. 

The majority of Bacanora’s supply is already committed to Chinese company Ganfeng, which owns 29% of the equity in Bacanora.  Whilst this undermines my ‘local demand for local supply’ thesis, the combined fact of Ganfeng’s stake and pre-committed supply for me mitigates risk for what could otherwise be regarded as a high-risk early-stage miner.  Bacanora has a market cap of £222m at the time of writing, and its shares are up 152% over the last year.

More aligned with my ‘local lithium supply for Europe’ thesis is AIM-listed Savannah Resources.  The company is working on a lithium mine in Portugal to supply European EV battery OEMs, but is still a long way off production.  Savannah has a market cap of just £62m currently, which makes it a minnow in the mining sector.  Its price is up by 73% over the last year but at 3.64p is currently far short of its 52-week high of 5.97p. 

For a five-year buy-and-hold investment in Savannah, I expect that a rather pleasant return would be waiting by 2026 and that a ten times return may even be possible.  Whilst that may seem outlandish, my prediction is that lithium prices will quickly enter into a self-perpetuating bubble as demand surges far more quickly than mining capacity grows.  I also predict that this will stimulate large-cap miners to buy out smaller producers at high prices.

Let’s be clear that these are currently pre-revenue companies with no dividend yield whatsoever any time soon.  Their price could fluctuate vastly as investors get to grips with the dynamics of local pockets of supply and demand for lithium.  Investors could also get diluted if these companies need more capital to reach production.  All of that is risk.

But in my view the strong correlation between lithium and EV demand make these lithium miners less speculative than other small and medium-cap miners whose product is slave to fluctuating market prices at the time they come on stream.

The post Does EV demand make lithium less speculative? appeared first on The Motley Fool UK.

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Tej Kohli owns shares in Tesla. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Tej Kohli is a deep tech and real estate investor at Kohli Ventures.  He is best known for his mission to end poverty driven blindness at the Tej Kohli Foundation.  Tej Kohli regularly shares his thoughts and wisdom on Twitter as #TejTalks.

Some might look to the soaring valuations of big tech stocks as a hedge against this inflation.  But as satisfying as it can be to catch a tech bull run that sees investment values grow quickly, sometimes it can be more prudent to avoid dabbling in volatility and simply go long on quality stocks with good dividend yields. Here, I identify two quality stocks that offer a little of both worlds – a good and reliable dividend yield, but also with the opportunity for the ‘bonus’ of some share price growth.

And there’s no easy way to say this – we’re talking tobacco.  Investors are free to build their portfolio as they wish, and a portion of investors will avoid tobacco investments for reasons that are well documented elsewhere.  But my concern here is simply finding high-yield stocks whose quality is empirically supported by a good Piotroski F-Score, and in these terms, it’s two tobacco stocks that come out on top.

Imperial Brands

With a dividend yield of 8.86%, a £1,000 investment in Imperial Brands (LSE: IMB) today offers an inflation-busting 4.86% annual yield in real terms.  Reinvesting dividends back into the stock over a period of 10 years would result in a future investment value of £2,417, or 141%.  And with a £14 billion market cap, Imperial Brands is a relatively low risk investment. 

Imperial is the fourth largest tobacco company in the world and has been around since 1901.  It passes 8 of the 9 financial tests in the Piotroski F-Score.  Put simply, it’s a high-quality stock with a good dividend yield, in an established and diversified global business, which is perhaps a little under-regarded by investors due to its focus on tobacco. 

But as UK inflation rises, I expect to see more investors move out of low-yield stocks and into Imperial to hedge against 4% inflation by recouping the 8.86% dividend yield.  This renewed interest may also drive the stock price up by 8% to reach its 52-week high.  In that scenario, if I bought at the current price, I could recoup a blended overall return of 16.86% this year for what I would suggest is a very low risk investment.

British American Tobacco

With a dividend yield of 7.61%, a £1,000 investment in British American Tobacco (LSE: BATS) today offers an inflation-busting 3.61% annual yield in real terms.  Reinvesting dividends back into the stock over a period of 10 years would result in a future investment value of £2,135, or 113%.  Much like Imperial Brands, BAT has a safe ‘blue chip’ market cap of £64 billion.

The company’s pre-close trading update for the first half of 2021 disclosed cash conversion of over 90%, which leaves plenty of headroom to sustain the dividend; plus 5% revenue growth is more than respectable in the most challenging trading year in memory. BAT also expects its non-combustible portfolio to double its current £16 billion in revenues within five years, further diversifying the business and continuing to secure its future.

Today BAT is trading at 2,830 with 13% upside to reach its 52-week high of 3,175.  I expect it will reach this higher level within 12 months as investors rotate out of low-yield growth stocks and into inflation-hedge stocks.  This would offer me a blended one-year return of 20.61% for low-risk high-quality stock with a Piotroski F-Score of a respectable 7 out of 9. 

Imperial offers the more attractive yield whilst BAT offers slightly more upside in terms of price growth if we set the price target as the 52-week high of either stock.  BAT offers a slightly better one-year blended return.  One potential route for me would be to hedge these stocks against each other by giving them equal weight in a portfolio and reinvesting their dividends.

The post 2 inflation-busting stocks to stop returns going up in smoke appeared first on The Motley Fool UK.

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Tej Kohli owns shars in British American Tobacco. The Motley Fool UK has recommended British American Tobacco and Imperial Brands. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Tej Kohli is a deep tech and real estate investor at Kohli Ventures.  He is best known for his mission to end poverty driven blindness at the Tej Kohli Foundation.  Tej Kohli regularly shares his thoughts and wisdom on Twitter as #TejTalks.

At the time of writing the stock is trading at 293p, which is a 28% discount on the IPO price and 55% down on its 52-week high.  At first it might seem to defy logic that a stock predicated on booking train journeys should be trading at its ‘peak pandemic’ levels just as the UK is poised to lift all Covid-19 restrictions, with 85% of the adult population vaccinated.  Commuters are returning to offices, meetings are starting to take place, and the UK is likely to experience a staycation boom that will also create a new boom in summer rail travel.

The trouble is those pesky politicians.  In May the UK Government announced a major overhaul of the rail sector, with a new body called ‘Great British Railways’ being created to consolidate the fragmented network of rail operating companies and to set fares.  In an apparent snub for Trainline, which provides website services for 8 of the 20 disparate train operating companies, a consolidated Great British Railways will also create its own platform to sell tickets.  This is what caused the Trainline price to slump just at the moment that it should have been climbing back to all-time highs as the UK returns back to normal.

But is the UK Government such a threat to Trainline?  National Rail Enquiries has existed for a number of years as a clunky and counterintuitive website and app that is ultimately mostly owned by the UK Government, and has never challenged the dominance of Trainline.  And the UK Government is hardly adept at creating efficient and intuitive digital services or for that matter overseeing any large-scale technology projects.  Great British Railways might even turn to Trainline for a white-label platform, given its tried-and-tested technology.

Investors in Trainline shares should still sleep soundly in their beds by remembering that Trainline is a technology play: its website is already entrenched in the minds and its app already installed on the smartphones of millions of UK users who rarely migrate to alternative platforms without a big incentive.  The original USP of Trainline may have once been to bring order to a fragmented market of 20+ train operating companies, but it has long since transgressed beyond this to become the endemic platform for booking train travel.

In June 2021 Trainline announced that it has increased net ticket sales to £334m, a 324% increase on the same period last year amidst lockdowns, though still lower than the £481m of net ticket sales that Trainline accrued during the same pre-pandemic period in 2019.  By the end of May 2021, its run rate of ticket sales was actually greater than they were pre-pandemic in the same period during 2019 despite ongoing travel restrictions, suggesting that the company has actually increased and entrenched its market share – and should recoup the rewards as restrictions are lifted and rail travel returns to post-pandemic levels.

Trainline’s international business also shows signs of becoming a major future growth catalyst.  It sells tickets and operates ticketing websites for train operators in 45 countries, which offers a further hedge against competition from Great British Railways in the UK, though the net margin on international sales is very small compared to UK sales.

Because Trainline is loss making and priced like a tech company, it has become one of the most shorted stocks on the UK market.  It is expected to post a final loss in 2021 before turning a modest profit in 2023, whilst its balance sheet remains strained by a very high level of debt to equity.  Before the share price plummeted in May 2021, the company was trading at 46 times analyst consensus of forecast earnings for 2022.  At its new lower price of 239p, Trainline is trading at 25 times forecast 2022 earnings.  I have a strong feeling that at the end of all of this, Trainline will still be standing strong.  As short sellers realise this, I expect to see gains of 124% as Trainline shares reach a 52-week high of 536p by Christmas.

The post As life returns to normal, Trainline shares look cheap appeared first on The Motley Fool UK.

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Tej Kohli has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Tej Kohli is a deep tech and real estate investor at Kohli Ventures.  He is best known for his mission to end poverty driven blindness at the Tej Kohli Foundation.  Tej Kohli regularly shares his thoughts and wisdom on Twitter as #TejTalks.

Back in March I wrote a post about how UK-US market disparity is undervaluing UK-listed companies after the chairman and CEO of Blue Prism Group claimed that the UK-listed company was worth a fraction of what it would be if it was listed in the USA, because British investors did not have enough understanding of tech. 

It is curious then that Danish consumer-review site Trustpilot Group chose London for its IPO in March, with an opening market cap of £1.1 billion.  Today Trustpilot shares trade near to the top of their 52-week range, with a market cap of £1.45 billion.  The prospect of a large technology company with plenty of potential to exponentially grow its revenues whilst maintaining a relatively low-cost platform should be an exciting proposition – but is it?

I have been struggling to get excited about Trustpilot ever since its IPO despite its many positive attributes.  Unlike other ‘young’ tech companies, Trustpilot isn’t burning through investor cash: the company makes a paper profit if you strip out interest and depreciation costs.  The stock is also relatively cheap, trading at c.10 times sales, compared to the c.20 times sales multiple typically enjoyed by other SaaS businesses, most notably in the USA.

The freemium business model is also eminently simple: 420,000 businesses use TrustPilot for free, whilst 26,000 pay an average of $5,600 for additional ‘premium’ services.  The brand is well established and should be able to leverage the network effect to entrench its position within a huge and fast-growing market: the more reviews and businesses that are listed on the Trustpilot platform, then the more value it offers users and customers.

So why can’t I get more excited about Trustpilot?  Firstly, there are rumours that Trustpilot employs a ‘heavy lift’ human-led approach to its sales function to convert ‘free’ customers into paying ones.  Relying on people-driven sales rather than ‘no effort’ endemic in-platform sales suggest an imperfection in the platform and a possible restriction on scaling growth.

I also worry that hubris might cause Trustpilot to overplay its hand and burn through its goodwill with its paying customers.  There is not much loyalty when it comes to online platforms, and it would not take much for customers to downgrade to the ‘free’ service or to even migrate elsewhere, especially if a rival offered a saving on $5,600 in annual fees. 

Google Reviews are also already endemic within search and Facebook also offers in-platform reviews too.  With their ability to track their users’ behaviours and preferences across the Internet thanks to their portfolio of integrated services, Google and Facebook are aligning reviews much more closely with online purchase behaviours than TrustPilot is able to.  As these tech titans make reviews an integral and endemic part of the online experience, they might be able to offer more value to paying customers in the form of deeper data, and may crowd out the importance of Trustpilot in the minds of consumers.

Google has long been increasing the emphasis on personalisation in its results, and it is inevitable that this will soon come into its reviews too.  General or ‘generic’ reviews from the general populous are useful, but sophisticated consumers really want to know what people ‘like them’ think about a product or service.  With its AI and big data sets, a player like Google could soon provide this using the same technology that is used to serve more relevant ads and sponsored search results, leaving Trustpilot trailing in its wake. 

There is also the question of trust in Trustpilot.  As it grows the platform has the mammoth task of removing fraudulent reviews and preventing manipulation.  This moderation requires more employees and brings more cost, undermining the opportunity for unmediated exponential growth that investors look for in a platform play.  And if Trustpilot fails in this, consumer affinity and trust in the brand could quickly migrate elsewhere.

All of which summarises why I cannot get excited about Trustpilot shares.  Given its brand and the immediate market opportunity, I probably should be excited.  But I just can’t get there. 

The post I’m struggling to get excited about Trustpilot shares appeared first on The Motley Fool UK.

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John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to its CEO, Mark Zuckerberg, is a member of The Motley Fool’s board of directors. Tej Kohli owns shares in Alphabet and Facebook. The Motley Fool UK owns shares in Alphabet. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Tej Kohli is a deep tech and real estate investor at Kohli Ventures.  He is best known for his mission to end poverty driven blindness at the Tej Kohli Foundation.  Tej Kohli regularly shares his thoughts and wisdom on Twitter as #TejTalks.

Twitter quickly pointed out that when a company has to clarify the pronunciation of its name in its own press releases, it is not a good start.  Why the company could not revert to its prior moniker of ‘Aberdeen Asset Management’ remains to be seen, but Abrdn says that it wants to become a “modern, agile, digitally enabled brand”.  That’s corporate speak for “we drank the Kool Aid offered to us by a branding agency and then spent lots of money.”

A good or bad rebranding can make or break consumer-facing brands.  Oatly, a Swedish consumer goods company, was a rather sedate unknown before its powerful 2014 rebrand made it one of the coolest brands on supermarket shelves.  Last week the company filed its pre-IPO prospectus in in the USA where it is rumoured that the company will seek a $10 billion valuation.  So not all rebranding is worthy of mockery.  But away from the world of consumer products, a rebrand can also signal that a company has run out of ideas. 

The new name and brand could belie an underlying insecurity that Abrdn does not know how to adapt or to become relevant beyond its traditional markets and customer base; that it does not know how to reignite the connectivity which it once enjoyed with its clients.  SLA shares tumbled in the aftermath of the 2017 mega-merger between Standard Life and Aberdeen Asset Management, and today they trade at just over half of their 2017 level.

Part of Abrdn’s current woes can be tracked back to the loss of a significant asset management contract with Lloyds, as well as a flight of investors from its flagship funds.  One can’t help arriving at the analogy of a lost middle-aged man trying to reinvent himself as hip, young and cool to recapture the popularity and vigour of his younger days.

For what it’s worth I believe that the divestment of the Standard Life insurance business and the general streamlining of seemingly disparate businesses under a single brand have all been the ‘right’ moves.  But I worry that the company might now be focusing on the ‘gloss’ of branding as a distraction from the difficult task of reinvigorating the underlying fundamentals that have driven its performance during better years.

It doesn’t help that over the course of the last five years, SLA stock has consistently underperformed the FTSE All-Share Index.  One of the attractive facets of the company had always been its dividend yield, so it was also unfortunate that the rebrand was announced on the back of Abrdn cutting its dividend by one third after profits fell by 17%. 

I have said before in a previous post for The Motley Fool, that I would never wish to align my investment interests with a company whose future is predicated upon subjective and esoteric ‘organisational change’ rather than upon observable objective factors.  With the Abrdn rebrand, CEO Stephen Bird has cast doubt as to which scenario the company now fits. 

There is at least some conciliation for Abrdn.  An old joke used to be that “Aberdeen” was an appropriate name, because like the (some say) dour Scottish city, the company was slightly dull but had nonetheless made a lot of money during the 1980s.  With this rebrand, the joke no longer holds.  Whether Abrdn will have the last laugh still remains to be seen.

The post Why the Abrdn rebrand is a poorly timed distraction appeared first on The Motley Fool UK.

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Tej Kohli owns shares in Twitter. The Motley Fool UK has recommended Lloyds Banking Group. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Tej Kohli is a technologist and investor and is Chairman of Kohli Ventures.  He is best known for his mission to combat poverty driven blindness at the Tej Kohli Foundation.  He regularly shares his thoughts and wisdom online and on Twitter as #TejTalks.

 

These gains are in part because investors are starting to see an eventual return to ‘normality’ after the black swan event of 2020; and also because of the rotation from growth stocks back into value stocks that I identified in my post of December 2020.  In that same post I also asked whether it was already too late to invest into value stocks.

There is nothing worse as an investor than not backing a stock that you have a strong instinct will appreciate, and then having to watch from the side lines as it soars.  Hindsight can be very punishing when you have to watch gains of more than 100% from stocks that you were not quite contrarian enough to punt at what turned out to be their low.

So, when you see a stock that hasn’t really bounced back, you have to ask yourself whether it might be a late opportunity to be brave and make a contrarian investment play?  That is exactly how I currently feel about Hammerson (LSE:HMSO) and Costain Group (LSE:COST).  Both stocks are currently trading at a tiny fraction of the price that they were back in 2018, and I cannot decide whether they are a contrarian opportunity – or a total folly.

It doesn’t help that when looking at these stocks I am presented with a dilemma.  Clearly their depressed stock prices are not merely the consequence of stock market malaise, but a reflection of real underlying problems within each company.  The question is whether the markets have ‘over punished’ these stocks to such a low base that they now offer a big upside opportunity, even if their prices may never fully recover to their levels of 2018.

Moreover, my expertise are as a technology investor backing forward-leaning companies and ventures, and as a real estate investor focused on technology clusters.  To understand the prospects of shopping centres (Hammerson) or infrastructure solutions (Costain) would require a deep dive.  So my instinct in these circumstances is that an investment is best avoided… but what if two years from now these stocks did return to their 2018 levels?

Hammerson is the easier of the two to get to grips with.  The company just posted the biggest loss in its history (£1.7 billion) and, as the owner of a huge portfolio of retail properties and shopping malls, most likely now finds itself on the wrong side of history.  During 2020 its rent collection dropped to 76% and occupancy fell from 97.2% to 94.3%.

Yet during 2020 Hammerson was able to successfully execute a £800m rights issue to shore up its position, and on 12^th March its Board proposed re-establishing its dividend.  The share price initially climbed – albeit from a very low base – upon this announcement, but investor sentiment then quickly cooled again, and the price is currently at 32.78p.  There is 33% of upside if Hammerson were to return to its 52-week high of 43.50p, and an astonishing 681% of upside if the stock were to return to its price of exactly three years ago.  The latter won’t happen, but an appreciation to somewhere between these values is not unthinkable.

The trend away from physical shopping and stores will continue even after the restrictions of the pandemic come to an end.  Yet there is also a lot of pent-up demand and savings amongst consumers who are desperate for a sense of ‘normality’.  After a year of being unable to visit physical stores, there may well be a retail revival when restrictions are lifted. 

Costain Group is a different story.  In September my Motley Fool colleague Thomas Carr asked whether a crash in the stock price meant that it was time to buy Costain.  Investors who decided that the answer to the question was ‘yes’ will now be sitting on 50% gains.  There is still 75% of further upside if the Costain stock price returns to its 52-week high, and 666% of upside if the stock can recover to its price of exactly three years ago.  In that respect the potential variance in the share price is not unlike that of Hammerson.

However, even though Costain is sitting on an order book of £4.2 billion, its operating margins are wafer thin, even in good times.  In March it had to execute a £100m rights issue to shore up its balance sheet and the company has shown how losing money on just two projects undermined the profitability (and value) of the entire company, as it swung from a modest £6.6m profit on a £1.15 billion turnover in 2019 to a £96m loss in 2020. 

Whilst Hammerson’s future prospects can largely be correlated with an objective and observable external trend – the return of shoppers to malls and with them new occupants for retail units – Costain has tied its future prospects to a highly subjective ability to “transform” itself and “improve its approach to contract selection”.  And that is where I jump off from my contrarian investment fantasy when it comes to Costain.  I’m just not interested in aligning my investments with the execution of ‘organisational change’.  But I am sorely tempted to make a contrarian investment into Hammerson.

The post 2 contrarian investment plays appeared first on The Motley Fool UK.

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John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Tej Kohli has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Tej Kohli is a technologist and investor who regularly posts about technology and investment as @MrTejKohli using the hashtag #TejTalks. Find out more at TejKohli.com.

The disparity between the performance of UK and US stocks came into focus again last month, when Jason Kingdon, Chairman and CEO of Blue Prism Group (LSE: PRSM), said that the artificial intelligence company would be worth between two and five times more if it was listed in the US, and that its share price would also be less volatile. Kingdon also raised the prospect of Blue Prism ditching its London Stock Exchange listing and moving instead to the US markets, because British investors did not have enough ‘understanding’ of tech.

Kingdom’s frustration was not entirely unjustified. Blue Prism shares had just fallen by 25% after the company reported its fifth year in a row of 40%+ growth selling its AI-powered robotic process automation software to customers in over 170 countries including eBay, Siemens and John Lewis. Kingdon added to his frustration that investors in the UK lacked “the ability to be able to look at a tech company and judge a good one from a bad one”.

Right now, Blue Prism is trading at 1,303p, its lowest since October 2020. The 52-week range is very wide: the stock traded at 795p one year ago and hit a high of 1,900p in January. What is notable is that despite the constant peaks and troughs, the 60-day moving average shows that the price has consistently drifted upward since June 2020. If this trend continues, the price could well drift up another 45% to meet its 52-week high once again and might even continue toward its September 2018 high of 2,560p, a 96% increase.

That alone seems like a very attractive prospect. But is my sentiment that there is a potential 96% upside being too cautious? Am I exhibiting “UK investor” thinking by not advocating for the 500% price increase that Kingdon is adamant would be the ‘correct’ value for Blue Prism?

That depends on whether you think that the UK is too cheap – or that the US is too expensive. In the US, the S&P index is trading at x20 earnings and yielding 1.5% according to Bloomberg. This compares with the UK’s FTSE 100 at x12.8 earnings and a yield of 3.2%. The conundrum goes deeper too, because the US figures are highly distorted by a market that contains titanic fast-growth technology stocks trading on very high earnings multiples.

Will the FAANGS tech stocks continue to dominate in this way? Exxon was number one in the index in 2013 and is 28^th today. IBM was number one in 1985 and is 67^th today. General Electric was number one in 2000 but is 73^rd today by market value. The only thing that we can conclude from this is that the US markets rotate their stocks much quicker than the UK market, which one could argue means that the FAANGS could fall if US tech stocks are in a bubble. By contrast, whilst some analysts claim that US tech stocks are in a frothy bubble that will eventually burst, other evidence suggests that the high return on invested capital companies have a tendency to stay as such.

So, what does this all mean for Blue Prism? Jason Kingdon would be rightly outraged that my analysis has thus far completely ignored the intrinsic value and potential of its technology in a world that is heading fast into omnipresent AI and automation (a subject that is extremely close to my heart). He is right that to base an investment calculus on such a shallow analysis of the amazing technology that Blue Prism has, is ignorance.

So, let me say that I firmly believe that omnipresent artificial intelligence and automation will add $150 trillion to the global economy in the next five years. And, put simply, I am unequivocal that Blue Prism is a clear market leader in enabling enterprises in over 170 countries to unlock the benefits of this oncoming artificial intelligence revolution.

Should Blue Prism’s stock market value be 45% to 96% higher than it is today? Yes, I believe so. Will it get there in the coming months? Almost certainly, in my view. Could it be worth 500% more than it is today if we map it against similar US stocks – or what that be irrational exuberance? The answer is that Blue Prism probably should and could attain that value, but the fact that Blue Prism is likely undervalued compared to US peers actually makes it a sound investment to me. Whether the upside potential of Blue Prism is 45% or 500%, the only way is up for its stock price.

The post UK-US market disparity undervalues Blue Prism Group appeared first on The Motley Fool UK.

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John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Tej Kohli owns shares in Facebook, Amazon and Apple. The Motley Fool UK owns shares of Alphabet (A shares). Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Tej Kohli is a technologist and investor who regularly posts about technology and investment as @MrTejKohli using the hashtag #TejTalks. Find out more at TejKohli.com.

 

Whilst the share prices of pharmaceutical companies such as Moderna have appreciated by a factor of ten during the last 52 weeks thanks to developing a Covid-19 vaccine, AstraZeneca’s has remained grounded and today is at the same level that it was in mid-2019. 

But the truth is that whilst the media headlines are focused on Covid-19 vaccines, many of which will yield no profit and all of which will face stiff competition as more new vaccines are approved, AstraZeneca is forging ahead with its portfolio of ‘on trend’ medicines that should prove increasingly profitable as they propagate into wider clinical use.  This portfolio of medicines represents an upside which seems to be barely priced into the current shares.

Take AZD7442 as an example.  It is an antibody combination medicine that could prevent people who are not a candidate for the COVID-19 vaccine from catching the virus for a period of six to twelve months.  AZD7442 may also enhance the immune systems of people who have caught Covid-19, and so potentially improve individual survival rates.  An analysis by Morgan Stanley suggests that AZD7442 alone could boost AstraZeneca profits by 30% in 2021.

AstraZeneca has also been churning out game-changing new medicines for the treatment of cancers at an impressive rate, which grew revenues in its oncology portfolio by 24% in 2020.  Oncology is one of the biggest areas of pharma investment, and AstraZeneca owns some of the best new medicines for treating cancers.  The company’s future pipeline also includes 172 projects and nine new drugs that are currently in late-stage trials.  Taken together, this emphasises the company’s entrenched position as a global leader in oncology medicine.

Some investors have worried that plans to acquire Alexion Pharmaceuticals for $39 billion will be a false step by AstraZeneca.  Such mega-mergers rarely manage to create the kind of new shareholder value that they initially promise.  But the acquisition will likely create a new area of strength for the company in the highly profitable rare diseases space, and AstraZeneca says that Alexion’s cash flow will enable it to increase its R&D spending.

But for all of this analysis, my sentiment that AstraZeneca is a good long-term investment comes down so a fairly simple calculus: that the company already occupies a strong position and is doing some truly ground-breaking things which, in better times, would illicit a lot more excitement from the investment community.  At today’s price of 7,334p, I believe there is approximately 40% of upside if shares in AstraZeneca simply return to their 52-week high of 10,120p, and in terms of risk, the company is about as blue chip as things can get.

There will be other stocks that might appear to offer a better yield or equity growth over the next few years, but I cannot think of many stocks that can rival AstraZeneca right now in being able to offer so much upside investment potential for such a low level of risk.

The post AstraZeneca: why I’m forgetting the headlines and following the trendlines appeared first on The Motley Fool UK.

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Tej Kohli owns shares in AstraZeneca and Moderna. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Tej Kohli is the founder of the philanthropic Tej Kohli Foundation whose ‘Rebuilding You’ philosophy supports the development of scientific and technological solutions to major global health challenges, whilst also making direct interventions to rebuild individuals and communities around the world. Tej Kohli is also an investor who backs growth-stage artificial intelligence and robotics ventures through the Kohli Ventures investment vehicle.

PayPoint is best known as the company behind the in-store payment services found in thousands of UK locations including convenience stores, supermarkets and petrol stations.  As the majority of these locations have been closed for months, the company’s short-term prospects have looked rather bleak throughout 2020.

But I believe PayPoint is an exciting company that was in a very good position before Covid-19, and its long-term prospects remain excellent.  PayPoint is also amongst a unique cohort of companies that has had the same CEO in place for over two decades – which is always a good sign of underlying stability.

If we remove coronavirus from the analysis, ‘underlying stability’ is what defines PayPoint.  With an astonishing operating margin of 47.2%, in 2020 the company delivered £56.8m of profit before tax from a revenue of £213.3m, with net debt of just £12m.  Yet this was not exceptional – similar results were consistently delivered in 2018 and 2019, too.

A common misconception is that PayPoint is merely a provider and operator of ATMs.  This would represent a risk in a post-coronavirus cashless society.  But its network of 3,620 ATMs is just one of multiple highly diversified revenue streams.  PayPoint also delivers an omnichannel digital payments offering, which includes providing contactless and chip and pin to 9,435 retailers.  The company also operates a highly regarded parcel ‘pick up and drop off’ network across more than 8,000 sites, which processed 24.5m parcels in 2020.

PayPoint’s position working with over 46,000 retailers across the UK (and Romania) is therefore highly entrenched.  Its network has more branches than all UK banks, supermarkets and Post Offices put together.  98.3% of the urban population live within one mile of a PayPoint retail partner.  And the company is empowering its partners to engage with a portfolio of its services far beyond payments.  This entrenched position creates a near-impenetrable barrier against any real threat of competition from the emerging cohort of tech-led companies that are focused exclusively on point-of-sale payment processing.

Of course, PayPoint’s short-term prospects are inevitably highly correlated with the progress of the UK Government in combating Coronavirus and ending lockdowns.  But the company is in excellent shape and management should be commended for having paid down debt and focused on the underlying fundamentals of the business.  Given the ongoing success of the vaccine roll out in the UK, and the prospect of reaching the end of a series of lockdowns, I don’t believe there is any reason that PayPoint shares cannot breach their pre-coronavirus level of 1,000p in 2021.

PayPoint shares might not arouse much excitement amongst those most used to encountering its branded ATMs inside their local store or newsagent.  But with a price-to-earnings ratio of just over x10 and the changing coronavirus outlook in the UK, I’m considering buying it now, and expect a 65% appreciation in 2021 followed by a consistent future dividend yield of at least 5%.

The post Why I think under-loved PayPoint is fighting fit for the future appeared first on The Motley Fool UK.

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Tej Kohli does not currently own PayPoint shares. The Motley Fool UK has recommended PayPoint. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.