Hello and welcome to Morningstar.
I'm Emma Wall and I'm joined today by Wouter Volckaert, Manager of the Global Trust at
Henderson (HGL).
Hi, Wouter.
Hi.
So, a bit about your background and your style.
You're style-agnostic as a fund manager, aren't you, because you don't want investors to get
caught out because income investing, value investing falls out of fashion.
You prefer stocks that are on a turnaround.
They are going from perhaps a bad place to a good place.
What that in mind, perhaps you could pick three stocks that illustrate that point for
us today.
Sure.
So, like you said, we like change.
We believe that investors are human beings and they don't deal with change very well
and that's when you get opportunities to have stocks that are maybe mispriced or mis-modelled
by the street analysts, which don't have the right expectations for earnings or cash flow.
So, my three stocks kind of fit into that category.
And the first one is today?
First one is Dollar General (DG).
So, Dollar General I like to call the Aldi of the U.S.
So, they are a chain of convenience stores that sell a limited assortment of products
very cheap and there are three types of changes with the company.
First, we think this business can grow at a high pace for much longer than the market
gives them credit for.
They are currently growing their revenues at about 10%, meaning 3% same-store sales
and 7% square footage growth, so expanding the business.
We think that can continue for years.
I believe the market is fading that growth.
And to give you just one statistic, Aldi has a 7% market share in Europe.
In the U.S. all the Dollar stores combined have a 2% market share.
We're much earlier in the adoption curve there.
And Aldi, of course, has been a real disruptive force in the U.K., haven't been able to invest
in it here.
But as the economy improves, are you concerned that people will move away from that discount
retailer or are they set in their ways now?
They are set in their ways.
I mean, these days in the U.K. it's more fashionable to walk around with a bag from Aldi than a
bag from Waitrose.
Absolutely.
And we see the same in the U.S. What's the second stock today?
Second stock would be Orange (ORA), the telco provider in France.
There is more – the industry is changing.
Telco has been a difficult space for 15 years because it's been very competitive, too many
companies and they have had to invest heavily in infrastructure and in buying licenses from
the government.
That's changing now.
The industry is consolidated.
There is a handful of players.
They are getting more and more revenues and the big revenue driver now is data.
People use their mobile phone to look at the Daily Mail and check their emails.
When I see people at the bus stop, they can't stand there for two minutes without checking
their phone.
They can't even do 10 minutes or 10 seconds in front of an elevator.
So, we're seeing more and more data growth.
That leads to revenue growth.
It's not been competed away and companies also don't have to spend it on infrastructure
anymore.
Sure, we're going from 4G to 5G infrastructure in a couple of years' time, but that's more
and more software driven, less hardware driven.
So, more revenues and more of those revenues can be returned to shareholders rather than
spent on something.
Prices are coming down though.
You mentioned consolidation within the market.
A couple of years ago there was an EU directive that said that as an U.K. mobile phone holder
I can now go to France and actually it comes out of my normal minutes.
Presumably that's had a downward pressure on the revenues that these companies were
receiving.
It has but it's been compensated by more data.
People used to have 500 megabytes, then 1 gigabyte, 2 gigabytes, 4 gigabytes and the
real game-changer there has been 4G.
Now, looking at a website on your phone is as fast as looking at a website on your computer
at home.
So, people are using it more.
And because it's such a part of their everyday life they have become very price insensitive.
So, they would rather pay a bit more to get even a bigger data bundle than not being able
to use their phones at all.
What's the third and final stock?
Third stock would be Carnival (CCL), the cruise liner.
Big beneficiary of the silver pound.
Exactly.
So, it benefits from an aging population.
It also benefits from being a three-player market with new management in all three companies
that are looking to maximize returns.
So they are no longer looking to discount prices to get their ships full.
They are looking to actually maximize revenues.
At the same time, we see the Chinese consumers starting to emerge and starting to be a traveler
and they love cruising because you can shop on cruise ships tax-free, you can gamble which
is something they love as well.
So, we are cruise ships being reallocated towards China driving up prices in the rest
of the world.
Then finally they are also big beneficiaries of lower oil and most analysts I speak to
still model $70 oil in their models for cruise ships.
We're at $35 at the moment.
So that should be a big tailwind for earnings revisions over the coming quarters.
Wouter, thank you very much.
You're welcome.
This is Emma Wall for Morningstar.
Thank you for watching.