Welcome to the Morningstar series, "3 Stock Picks." I'm Holly Black. With me is Nick Shenton.
He is Manager of the Artemis UK Income Fund. Hello.
Hi, Holly. So, you've got three stocks for us today,
all UK-based. Where would you like to start? Well, let's start with one which has been
in the portfolio for seven years that we rarely get asked about and rarely have the opportunity
to talk about. So, you're forcing me to let you talk about
it. Exactly, yeah. I'm going to make the most
of this opportunity. No one else will.
And that's LSE Group, which might be better known as London Stock Exchange. And the secret
behind that is, it's not really a stock exchange. It's much cleverer than that. So, the business
is actually a provider of infrastructure for financial markets on a global basis. To put
it more simply, technology is good for LSE Group because it can do more things for more
people. And they've really benefited from that in recent years. They're also moving
deeper into data through the acquisition of Refinitiv, and we like that move, because
we see a pattern that we've observed in other companies that have been good investments
for us, like Wolters Kluwer or RELX, and that is, using data to produce better outcomes
for businesses to help them make better, more informed decisions. And we just see that as
a structural growth market. Okay. So, as well as it taking over our companies,
which expands its capabilities, it's also been the subject of takeover bids. So, does
that enhance the investment case for it? Yeah, it seems to come along at least once
every two years that LSE Group is bid for involved in M&A. So, Hong Kong Stock Exchange
actually bid for LSE last summer at a high price than the shares currently trade, and
we think they were right to turn down the bid. But it does to us highlight the attractions
of LSE as being a world-class actually quite unique asset sat right here in London.
Okay. What's stock number two? Stock number two is perhaps a bit more recognizable
for income investors, and that's Secure Income Investment Trust. So, that does what it says
on the tin. It is all about secure income, which is very much our bread and butter. We
say our holy grail is a 4% dividend yield growing at 5%. And that's broadly what Secure
Income offers. So, what does it hold?
They know UK property very well, and they've avoided all of the structurally challenged
areas like shopping centres. Instead, they've gone from more defensive long duration assets,
like private hospitals or theme parks. So, Thorpe Park is one of theirs as is Alton Towers.
That's a great thing to own. It certainly is. That will still be around
in 20 or 30 years. Okay. What's our final stock?
We understand there are structural pressures, certainly for a large amount of ITV viewing,
because in 10 years' time people will probably consume TV as apps rather than through set-top.
And also, we understand the pressures from Netflix, et cetera. But a couple of things
that really intrigue us about this, firstly, what we are hearing from a number of companies,
and this is advertising agencies, companies that advertise themselves is that their industry
has gone too far to using Google to access customers.
That's what they call targeted marketing where you think you're going to get a deal. And
they've been under-investing in brand building. And if you don't believe us, just look at
something like Love Island and who's advertising on it. It's Amazon; it's Spotify; it's Netflix.
So, the big internet players acknowledge they need to build their brands. So, that might
be undervalued. And the second point that really surprised us, to be honest, was actually
how much ITV have been investing in technology to create more value for their customers and
advertisers. So, at 5.5% dividend yield and 12 times its cash flow we think ITV could
actually be an interesting survivor of technological threat turning into opportunity.
Well, thank you so much for your time. Thanks for having me.
And thanks for joining us.