Citywire AA-rated manager Andrew Jackson has picked out Reach (RCH), PZ Cussons (PZC) and Secure Income Reit (SIR) as three key names to watch as value stocks return to favour during the economic recovery.
His £648m Premier Miton UK Value Opportunities fund has been a strong performer since November’s vaccine breakthroughs, gaining 41.9% since the start of that month, versus 26.6% by the FTSE All Share.
Even further back, the manager’s performance since taking over the fund in 2016 has been solid despite the headwinds for his value style, which focuses on cheaper and higher-yielding shares. Over three years, it has delivered 35%, well ahead of the UK index’s 10% gain.
Reach for the shares
The first stock Jackson (pictured) highlighted was Reach, the fund’s top holding with a 5.1% weighting at the end of February.
The newspaper publisher’s key print titles including the Mirror and Express, along with regional stalwarts such as the Manchester Evening News, are all in long-term structural decline.
‘The investment case looking forward is all about its digital revenues or, actually more to the point, the current lack [of] or underachievement in digital revenues,’ said Jackson, speaking on an investor webinar.
Historically, the company has done little to monetise its large online reader base. Jackson said Reach is not planning to set up a subscription model but is now building up a richer picture of its audience in terms of data, increasing its appeal to advertisers.
The company’s balance sheet is in solid shape, although there is some concern over its pension fund.
The stock has already rallied strongly. From lows of around 50p in August, the shares are now trading at 218p, having pulled back slightly from a high of 245p in February.
‘This is a company going from old world analogue into new world digital and while it’s still in the fairly early stages of this process, the rating, I think, still leaves scope for more upside despite the strength in the shares in recent months,’ said Jackson.
‘Return to form’
PZ Cussons is slightly larger than Reach, but with a £1.2bn stock market valuation is also in the mid-cap space where Jackson can find more overlooked ideas than among FTSE 100 giants.
The stock has also won the approval of Nick Train, who took a stake in his UK fund in late 2019.
The personal hygiene business, which owns the Imperial Leather and Carex soap brands, has been in ‘a state of drift’ for several years, said Jackson. The exact size of his fund’s stake is unclear, given it is outside the top 10 holdings.
Last year, the family owners of the company brought in new management, who are now focusing on building its strongest brands. Progress is also being made tackling its inefficient African business, with the firm having significant market share in Nigeria.
‘It’s long been easy to shun the business, but I think over the next few years we may see a return to form,’ said Jackson.
Ready for Alton Towers?
The veteran investor picked out Secure Income Reit as a more immediate recovery prospect.
The £1.2bn property investment company’s portfolio is split between about 40% in private hospitals and the remainder in leisure assets like pubs, Travelodge hotels and iconic theme parks Alton Towers and Thorpe Park.
‘The interesting part is the valuation of the leisure assets,’ said Jackson.
As rent collection has been impaired during the pandemic, these have been revalued at what the manager considers high yields given the ‘fairly immediate’ prospect of lockdown restrictions being lifted. This should remove concerns about rent collection as they are able to start generating revenue again, tapping into pent-up demand.
Jackson argues there is still chance to pick up some good assets at a ‘cyclical low’. The shares have also traded at a wide discount to net asset value, although this has narrowed recently to around 2.5%, according to data from broker Numis.
Secure Income Reit is similarly outside of Jackson’s top 10 holdings, meaning the exact size of the position is unknown. Other holdings in the fund include holiday and airline firm Jet2 (JET2) and miner Anglo American (AAL).