UK value stocks #1

M.P. Evans Group (LSE: MPE) is a producer of sustainable crude palm oil from plantations in Indonesia. Its well invested estates and strategy of steady expansion underpin its commitment to pay attractive returns to investors through increasing dividends.

This £346m-cap FTSE AIM 50 stock trades at a discount to Asian peers. A few years ago, shareholders resoundingly rejected a 740p-a-share offer from one such peer on the grounds it substantially undervalued the business. The latest independent valuation of its assets gives the group an equity value of 1,001p per share.

The share price is 635p, as I’m writing. This is a 14% discount to the rejected offer and a 37% discount to the independent valuation. With the prospect of steady asset expansion, rising profits and increasing dividends, MPE’s shares look very buyable to my eye.

UK value stocks #2

Another business I’d be happy to buy a slice of is Ocean Wilsons Holdings (LSE: OCN). This one is listed on the FTSE main market, and has a capitalisation of £241.4m.

OCN has a controlling 58.16% interest in Sao Paolo-listed Wilson Sons — one of the largest providers of maritime services (towage, container terminals and so on) in Brazil. OCN also has a portfolio of around 80 international fund investments (e.g. Findlay Park American and Adelphi European Select Equity).

Based on Wilson Sons’ latest share price, and current exchange rates, OCN’s interest in the business can be valued at £243.4m. This is equivalent to 688p per OCN share. Meanwhile, the value of its investment portfolio last reported (31 October) was £211m, or 597p per OCN share.

Therefore, the sum of 688p and 597p gives OCN shares an intrinsic value of 1,285p. Yet they’re trading at 682.5p — an implied discount of 47%. Put another way, OCN shares buy you Wilson Sons at a small discount to its price on the Sao Paolo stock exchange and you get the £211m investment portfolio thrown in for free. My calculations suggest OCN is another top value stock on the UK market.

A cornucopia of cheap assets

Finally, I’d also be happy to buy FTSE 250-listed AVI Global Trust (LSE: AGT). It scours the globe for opportunities — typically holding companies and closed-end funds — where the price is at a significant discount to the estimated underlying net asset value (NAV).

For example, its top 10 holdings at its last year-end (30 September) included Pershing Square (estimated discount 30%), Softbank (56%) and Prosus (34%).

And AVI Global’s holdings each own, or have an interest in, a number of assets. For example, you’ll find coffeehouse chain Starbucks, and Chinese technology giants Alibaba and Tencent in the portfolios of Pershing, Softbank and Prosus respectively.

In addition to the discounts to NAV of its holdings, AVI Global is trading at a discount. Its share price of 794p is just over 10% below its last reported NAV of 883p (at market close on Thursday). As such, it’s another great UK value stock in my book.

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These same characteristics apply to mid-cap Ocean Wilsons Holdings (LSE: OCN). The larger of this company’s two subsidiaries is one of the leading port, maritime and logistics operators in Brazil. Its other subsidiary owns an eclectic portfolio of international investments.

Progress under new management

Smiths Group has five operating divisions that serve diverse markets. Following a change of management in 2015, the company has been rationalising its portfolio to focus on markets with good growth prospects and where it is, or can be, a top three player. To this end, it’s sold nine businesses and bought four over the last two years and reckons the group’s positioning in attractive markets has moved from 60% to 80%.

In the medium term, once its ‘fix-or-sell’ strategy is complete and with the investment it’s been making in its favoured businesses, management is confident the group will achieve organic annual revenue growth above the 3%-4% of its chosen markets. I’ve been impressed with the progress made by the new management so far. The shares reached a high of over 1,800p during the summer and I reckon the current price of nearer 1,500p, which is 15 times current-year forecast earnings with a 3% dividend yield, could prove a bargain, if management delivers on its medium-term target.

Value-unlocking options

It’s also clear that the board of directors isn’t averse to a more radical unlocking of value for shareholders than by the piecemeal disposals seen to date. The group recently discussed (but ultimately turned down) a reported £2.8bn offer for its medical division from US firm ICU Medical. Analysts’ sum-of-the-parts valuations of Smiths Group vary, but the approach by ICU clearly shows there’s value there. The medical division contributed 28% to group revenue last year, while the mooted ICU offer for it was equivalent to 47% of Smiths’ current £5.95bn market cap.

The way I see it, whether management delivers (with or without a major disposal), or whether management falls short and activist investors push through a value-unlocking break-up of the group, the stock is currently cheap and I rate it a ‘buy’.

Additional value

Ocean Wilsons currently trades on a slightly lower earnings multiple and higher dividend yield than Smiths Group — a rating little changed from when my colleague Peter Stephens extolled its capital and dividend growth prospects last autumn. With its main subsidiary (Wilson Sons) listed on the Sao Paulo stock exchange and much of its portfolio of international investments being traded funds (such as Findlay Park American), Ocean Wilsons’ sum-of-the-parts valuation is a fairly straightforward matter. I reckon it’s currently around 1,500p, compared with a share price of 1,045p.

Furthermore, there may be additional value within the Wilson Sons subsidiary. Management is currently looking at strategic options for the container terminal part of the business. This is with a view to maximising shareholder value in light of some recent buyers in the sector willing to pay high prices. However, even if nothing comes of this particular avenue of exploration, Ocean Wilsons is another stock I see as cheap. I’d be happy to buy today.

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The threat of inflation is the key reason why this ‘secret’ dividend growth stock could be a better buy than Motif Bio (LSE: MTFB). That’s despite the biopharmaceutical company’s encouraging progress and strong long-term growth potential.

Improving performance

The ‘secret’ dividend growth stock in question is Ocean Wilsons (LSE: OCN). The company is engaged in the provision of maritime services and logistics in Brazil, and issued a positive third quarter update on Monday. It showed that the company was able to increase revenue by $3.9m to $129.4m versus the same period of the prior year.

Port terminal and logistics revenue was 16% higher. This was mostly due to higher container terminal revenue. The latter was positively impacted by increased container movements as well as higher import revenue. Container volumes in the period were up 7%, with higher transhipment volumes being a key reason behind this growth. Towage and ship agency revenue for the quarter was 3% lower than in the prior year, although in the first nine months of the year the company’s total revenue moved 10% higher when compared to the prior year.

Dividend growth

With a dividend yield of 4%, Ocean Wilsons appears to have income appeal at the present time. Its income return is likely to remain ahead of inflation over the coming years, which may make it highly attractive to a number of investors. However, it is the company’s potential for dividend growth which could make it even more enticing. It has a dividend coverage ratio of 1.9, which suggests that dividends could grow at a faster pace than profit in the long run without hurting its ability to reinvest for future growth.

Capital growth potential

As well as its dividend growth prospects, the company could also offer high capital growth. It trades on a price-to-earnings (P/E) ratio of just 13.3, which indicates it may offer good value for money.

Of course, Motif Bio also has high capital growth prospects. The company appears to be making encouraging progress with its clinical trials, and according to its most recent update it has been able to deliver on time its key milestones in the current year. Furthermore, positive top line results from its REVIVE-2 clinical trial show that it could offer improving financial performance in the long run. And with a recent placing, the company appears to have sufficient cash resources to deliver on its growth plans.

Certainly, Motif Bio is a stock with growth potential. The healthcare sector could offer less highly correlated returns at a time when the outlook for the wider stock market is uncertain. As such, it appears to offer investment appeal. However, with Ocean Wilsons having dividend growth potential while inflation moves higher versus no dividend payment for Motif Bio, it could be the better buy at the present time.

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Generous yield

The shares dropped over 8% to 625p in early trading today after the company reported a 5.7% decline in first-half revenue and a bottom-line loss due to a non-cash amortisation expense. Nevertheless, operating cash flow was strong and management declared an interim dividend of 21.6p.

In the IPO prospectus, the company had said it intends to pay a “minimum” gross dividend of $25m for 2017 and that “the split of dividend between interim and final will be approximately 50/50.” So, we’re looking at a full-year payout of around 43.2p, giving a yield of 6.9%. With 62.83m shares in issue, and at current exchange rates, the gross dividend would be $35m. This is rather more generous than the $25m and 4.5% yield I was anticipating ahead of today’s results.

Expansion

The decline in revenue reported in the first half was down to “cruise lines deciding on short notice to substitute Turkish ports (mainly with Greek island ports) due to negative perception of Turkey among foreign tourists.” However, the company’s commercial ports in the country were “unaffected by Turkish geopolitical developments.”

With 14 ports in eight countries and management having identified a further 20 acquisition targets, geographical diversification will increasingly dilute the impact of negative events in any single country. However, expansion won’t come cheap. The company has said that 11 of the prioritised target ports would require capital expenditure of between $700m and $900m.

Dividend prospects

The company has cash of $124m but net debt of $215m. So further equity fundraisings — dilutive to existing shareholders — look on the cards. And while the dividend policy is for “dividends to grow in line with earnings,” the board has also said that “the timing and amount of any future dividend payments” is dependent on, among other things, the group’s “capital requirements.”

Global Ports could be a great dividend stock for the long term but the need for heavy capital expenditure and likely dilution mean that steadily increasing payouts for shareholders are by no means assured.

Big discount and healthy yield

I’m rather more confident about Ocean Wilsons Holdings (LSE: OCN) as it has a longer history on which it can be judged. Its operating subsidiary Wilson Sons is one of the largest port and maritime services operators in Brazil. The other part to Ocean Wilsons is a portfolio of international investments, mainly through collective funds and limited partnership vehicles.

Wilson Sons shares are listed on the Sao Paulo stock exchange and at their current price and exchange rates are worth around £9.75 per Ocean Wilsons share. The investment portfolio, at the last reported date (31 July) and current exchange rates, is worth around £5.67 per Ocean Wilsons share, giving a total of £15.42.

As Ocean Wilsons shares are trading at £10.85 — an attractive 30% discount to the sum of its two parts — and it offers a healthy yield of 4.5%, I rate the stock a ‘buy’.

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Teutonic stability 

Sirius announced full-year results this morning and rewarded shareholders with a 32% year-on-year (y/y) increase to its dividend so that the shares now yield a hearty 4.3%. This increase was more than matched by rising profits and earnings per share of 4.25 cents nicely cover the dividend payout of 2.92 cents per share.

The company’s stellar forward momentum has been driven by very impressive domestic economic growth that has steadily increased demand for the business parks Sirius purchases, invests in and flips for a profit when mature.

In the year to March the group notched up a 23% y/y rise in total income to €68.8m due to acquisitions and a very healthy 5.1% increase in like-for-like rental income. Management has also continued to actively manage the portfolio and made €153.2m in purchases during or shortly after the year-end period and disposed of €110.4m worth of properties.

As the German economy picks up steam the group is benefitting not only from rising rents, but also steadily appreciating property values. Last year saw an 8.5% like-for-like rise in the valuation of already-owned properties and a full 11.2% uplift in the value of recently acquired properties. Together this gave the company’s portfolio a year-end book value of €823m and kept its gross loan-to-value ratio a decent 42.3%.

The downside for would-be investors is that Sirius’s well-run business model and the healthy German economy have sent the company’s shares on a stellar run so that they now trade hands at a full 16 times forward earnings. This is simply too lofty a valuation for a real estate company to make me comfortable enough to purchase shares.

A tad too risky?

On the other side of the world, investment holding firm Ocean Wilsons provides shareholders with a very nice 4.8% dividend yield that last year was covered two times by earnings. The company’s main asset is a large stake in the similarly named business that engages in maritime services in Brazil.

That business is a well-run one and last year coped well with lower shipping volumes into and out of Brazil due to the poor macroeconomic environment. During the period the company’s profits rose from $29.3m to $80.7m, but this was down almost entirely to the appreciation of the Brazilian Real. But management being able to maintain operating margins shows the underlying business is sound.

However, Ocean Wilsons is still a tad too risky as an income share for me to commit money to it. This is down to the high volatility of the Brazilian economy, the Real depreciated a full 20% y/y in Q1 alone, and the fact the company also owns an investment portfolio worth some $253.2m. This diversified structure and reliance on the health of a highly corrupt, politically unstable developing country leads me to look elsewhere for my income shares.

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Going against the grain

Indeed, a recent case in point this year is investors who were brave enough to buy the out-of-favour commodity and oil and gas stocks and have seen spectacular gains year-to-date.

For many years, value investors have sought to buy stocks on low PER while selling those that have rerated and trade on higher valuations and they’ve found it a winning strategy.

The contrarian meanwhile seeks out stocks that are typically cheap, and/or out of favour and facing headwinds – be that political, economic, or simply commercial. However, investors should be cautious when the prospects for a business aren’t especially rosy and need to look for signs of improvement as things can often get worse before they get better.

Three companies for the brave

As can be seen from the six-month chart, all three companies under review have disappointed to varying degrees, but is this down to a broken business or simply market negativity? Let’s take a closer look.

Starting with the biggest loser Aberdeen Asset Management (LSE: ADN), a company that has been under pressure for some time due to the negativity towards emerging markets. Management reported the interim results to March 2016 on Tuesday. They were characterised by a backdrop of ongoing fragile investor sentiment towards emerging markets, with the cyclical slowdown exacerbated by the effects of falling oil and commodity prices.

Despite the negativity, management decided to hold the interim dividend at 7.5p, and in the outlook noted tentative signs of optimism from investors who buy into the company’s long-term value-based equity investment process.

Following the share price fall, the forecast PER is a little over 13 times earnings with an expected yield of over 7% for the full year, which should be covered by earnings – just.

Another emerging market player in the doldrums is blue-chip bank HSBC (LSE: HSBA). It’s hardly surprising therefore that the shares are off by around 30% over the last 12 months. It seems that the market was braced for the 18% fall in adjusted profit before tax, only sending the shares down by a few percentage points.

There was also welcome relief for income investors with the dividend held and expected to be more than covered by earnings.

Indeed, like Aberdeen, the dividend yield has risen to over 7%, and with a single-digit forecast PER and a price-to-book value of less than 1, these shares are looking cheap on a number of metrics.

Last up is lesser-known Ocean Wilsons Holdings Limited (LSE: OCN), an investment holding company which, through its subsidiaries, is engaged in the provision of maritime and logistics services in Brazil. Its segments include maritime services and investments.

The shares have been on a bit of a run recently as the market reacted positively to what the chairman described as a strong performance in a challenging market.

As with HSBC, the shares trade on a single-digit forecast PER and yield over 5%, and as with all the shares here, investors could see a rerating should emerging markets turn a corner.

The post 3 Emerging market contrarian plays: HSBC Holdings plc, Aberdeen Asset Management plc and Ocean Wilsons Holdings Limited appeared first on The Motley Fool UK.

However, from their current depressed valuations, these three stocks have the potential to re-rate considerably higher when market sentiment improves. Their shares could soar.

Barclays

Barclays’ progress since the financial crisis has been disappointingly slow. Recovery has not been helped by wrongdoing and scandal. Of all the banks, Barclays seems to have been most successful in turning “shooting yourself in the foot” into an art. Restructuring has dragged interminably, and staff morale is reportedly low.

Investor sentiment is low, too. For example, while investors are currently prepared to pay £1.52 for every £1 of Lloyds‘ assets, they’re only willing to pay 97p for every £1 of Barclays’ assets. Of course, Lloyds is presently making more profit from its assets than Barclays, but the relative valuations indicate the size of the potential re-rating, if Barclays can really get its act together.

Even as things stand, Barclays is rated on a current-year forecast price-to-earnings (P/E) ratio of a modest 12, falling to just 10 for 2016. Furthermore, P/E-to-earnings growth (PEG) readouts of a mere 0.4 and 0.5 for the two years are well on the value side of the PEG “fair value” marker of 1. The recent arrival of John “Mack the Knife” McFarlane as Barclays’ executive chairman could speed up a re-rating of the shares, which are currently trading at under 280p.

Ocean Wilsons

Ocean Wilsons’ current difficulties are not of its own making. The group’s investment division holds a diversified portfolio of international investments, and continues to perform perfectly satisfactorily, but the group’s major asset is a subsidiary called Wilson Sons, which controls a maritime services and logistics company in Brazil.

Some of the Brazilian businesses are performing robustly but, with operations that include container terminals and offshore oil support services, the company is facing headwinds from softer export demand, the low oil price and reduced industrial activity — as well as an adverse impact from the strength of the US dollar against the Brazilian Real.

Ocean Wilsons’ shares were at an all-time high of over £14 a few years ago, and were above £12 as recently as last year. They’re presently changing hands for less than £9. On a current-year forecast P/E of 13.5, falling to 10.5 next year — and PEG ratings of 0.2 and 0.4, respectively — there’s scope for a substantial re-rating of this well-run company’s shares.

Goodwin

Small-cap engineer Goodwin is another company that has been impacted by the collapse of the oil price. In its annual results, released last weak, the directors reported a substantial contraction in order placing activity in the oil and gas engineering market sector. Weakness in Goodwin’s mechanical engineering division was partially offset by strong growth in its smaller refractory engineering division; but, nevertheless, group revenue was down 3% and pre-tax profit down 17% year on year.

Goodwin’s shares reached a high of over £41 last year, but are currently trading at under £25. This is another well-run business, and its directors’ commentaries should win an award for succinctness and plain English. The numbers, too, are presented with admirable transparency: warts and all; no adjusted this and adjusted that.

No City analysts are covering Goodwin, and the company doesn’t seem to bother with the paid-for “research” notes that many small companies seem to think are a good use of shareholders’ funds. The trailing P/E is a modest 12, and the previous year’s earnings, which give a P/E of just 9.5, demonstrate the potential for a re-rating of the shares when earnings growth returns in due course.

The post 3 Unloved Stocks Set To Soar: Barclays PLC, Ocean Wilsons Holdings Limited & Goodwin plc appeared first on The Motley Fool UK.

Banco Santander

Banco Santander was founded in the port city of Santander on Spain’s northern coast in 1857. Today, the bank is a global giant, and a familiar name on the UK high street.

However, we have to look beyond Europe to find Santander’s biggest market. Last year, 46% of the group’s net operating income was generated in Latin America, breaking down as: Brazil (30%), Mexico (8%), Chile (6%) and other (3%).

Santander has recently bulked up its capital with a €7.5bn share placing and a rebasing of this year’s dividend to one third of last year’s (giving a safe, if modest, 2.9% yield). On a current-year forecast P/E of 12.7, and with mid-teens earnings growth expected this year and next, the shares seem to offer good value.

SABMiller

World number two beer company SABMiller was formed in 2002 when South African Breweries acquired Miller Brewing Company of the USA. The combined group has subsequently gained substantial exposure to Latin America with major acquisitions and joint ventures.

In its latest results, for the six months to September 2015, SABMiller reported that 22% of group revenue and 47% of operating profit come from Latin America. The money rolls in from Argentina, Chile, Colombia, Ecuador, El Salvador, Honduras, Panama, Paraguay and Peru.

SABMiller’s shares — like those of other top drinks groups — are highly rated: the forecast P/E for the company’s fiscal year just ended (31 March) is 23, falling to 21.5 for the upcoming year, and 20 for the year after. However, earnings are forecast to grow by high single digits annually, so the rating is not totally bonkers.

Ocean Wilsons

Ocean Wilsons will be less familiar to most investors than Santander and SABMiller. However, this £300m company has more exposure to Latin America — albeit that exposure is concentrated entirely on Brazil.

Ocean Wilsons’ principal subsidiary Wilson Sons Limited is a Brazilian maritime services company (container terminals, towage, shipyards and so forth), and accounts for 78% of Ocean Wilsons’ assets. The other subsidiary is simply an investment fund, holding global equities, bonds and other assets.

Ocean Wilsons’ shares are trading at a good discount to the combined net asset value of the two subsidiaries, suggesting there is decent value in the shares.

The substantial exposure of all three companies to the potential strong, long-term economic growth in Latin America could pay off for investors. Businesses with powerful consumer goods brands — such as SABMiller — are among my personal favourites as buy-and-hold investments. As such, I’d be inclined to have a larger weighting in the beer group than in Santander, and perhaps a lower weighting still in Ocean Wilsons, with its riskier single-country focus.

The post Which Is Your Best Bet On Latin America: Banco Santander SA, SABMiller plc Or Ocean Wilsons Holdings Limited? appeared first on The Motley Fool UK.

What’s good enough for octogenarian Buffett should be good enough for an investor just starting out on the road to long-term wealth accumulation.

Today, I’m going to tell you why I think National Grid (LSE: NG) (NYSE: NGG.US), London Stock Exchange Group (LSE: LSE) and Ocean Wilsons Holdings (LSE: OCN) are worth consideration for a beginner’s portfolio.

National Grid

You may have come across Buffett’s famous warning — “unless you can watch your stock holding decline by 50% without becoming panic-stricken, you should not be in the stock market” — and decided you have the stomach for it.

However, I can guarantee that a market panic when you have hard cash at stake will be more unsettling than you imagined. For this reason, I think new investors are well advised to include some core ‘defensive’ shares in their portfolios. These are shares that may not shoot the lights out in a bull market, but should decline less than other shares when markets are in freefall.

You’d be hard-pressed to find a better example of a defensive share than National Grid, the company that runs the UK’s electricity wires and gas pipes. National Grid — which currently offers a prospective dividend yield of 5% at a share price of 886p — is a popular choice with income investors, such as pension funds and individual retirees. However, younger investors can reinvest the dividends and benefit from the compounding effect of owning more and more shares in the company.

London Stock Exchange Group

While defensive shares, such as National Grid, can be a steadying influence during market wobbles, you’ll need some racier shares to fully exploit the tendency of markets to rise over the long term (multi-decades).

One of the most direct ways to exploit this tendency is to buy shares in the London Stock Exchange Group. So long as markets thrive, and the company is well managed, you should effectively get a geared return.

The shares of London Stock Exchange are rated relatively highly because of this growth potential. A current price of 1,892p represents 18 times the company’s annual earnings, compared with 16 times in the case of National Grid.

Ocean Wilsons Holdings

I think Ocean Wilsons Holdings also merits consideration as a racier selection for a beginner’s portfolio. The company has two principal subsidiaries: Wilson Sons, whose activities include harbour and ocean towage and container terminal operations in Brazil, and Ocean Wilsons Investments, which is simply a portfolio of holdings in investment funds.

The company is well-run, has exciting long-term growth prospects, and the shares are attractively priced relative to the value of the assets. The shares are currently trading at 1,143p, but at the Board’s last reckoning, if the company sold all its assets, the cash raised would amount to 1,463p a share. Put another way, when you buy the shares you’re paying just 78p for every £1 of assets.

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