Welcome to the Morningstar series, "3 Stock Picks." I'm Holly Black. With me Gervais Williams.
He is manager of the Miton UK Multi Cap Income Fund. Hello.
Hello there. So, we're talking about three stocks in the
portfolio that you're very positive on at the moment. Where would you like to start?
I think one I'm going to start with is CMC. CMC is a business which actually transacts
futures and index trades and that kind of thing. It does it for some of the professional
investors, but it also does it for private investors through their website. It's a lovely
business in that they're so good at looking after their customers. And when you get stock
markets moving around fast, they tend to do quite a lot of business. It's had a slightly
difficult history in the last couple of years, because we've had some ESMA changes. The Europeans
have asked for some changes to the regulation. That's led them – some of their customers
to go away for a while. They've come back now. But most particularly, their share price
has gone all the way down, and it's a lovely entry point. It's starting to go up now. So,
it's a business which just had a trading statement recently. It did about 99 million of sales
in the first half. Its forecasts aren't that demanding in my view. It's probably on about
12 times, dropping to 11 times, but that's after a 56% upgrade at the recent trading
statement. And I think there's more momentum in the stock. It's got a good deal, perhaps
3%, 4%, maybe it could rise quite nicely from here. It's kind of stock with about 200 million
in cash, 375 million market cap. It's just a lovely position.
Okay. And what's stock number two? So, the next one, also quite a good stock,
is a company called Kenmare. Now, Kenmare is a mine. It mines ilmenite. Ilmenite used
in all sorts of whitening agents. So, most of the paper, most of the paint has ilmenite
in it. It is the whitening agent which is used for that. It is titanium dioxide. It's
one of the largest mines in the world. It produces about 7% of the ilmenite in the world.
For many, many years, they've been building it, they've been getting it ready, they've
spent a lot of money. There's been a few setbacks along the way. The share price has been up
and down along the way, but they're now in the finishing position. They're actually generating
lots of cash. They've got one last investment to do. But beyond that, they're beginning
to pay dividends. For the first time in the company's history, they're starting to pay
dividends. So, it's a lovely entry point as we get to the cash payback on the project.
It's based in Mozambique. So, there's a little bit of a country risk there. They export from
their own jetty right on the coast, it's right on the coast. But most particularly, it's
just so overlooked in our view. The valuation is around a P/E of 6, dropping to a P/E of
5 next year. We think as that cash starts come through, we're just getting to the early
– the first dividend. I think the first dividend is actually paid technically today,
but most particularly, we've got some more to look forward to. And it's just a really
well-positioned group, which we think is overlooked, which has good scope to share price rise.
And mining is quite a cyclical sector to be investing in. So, do you have to bear that
in mind? Certainly, you do. And that's, as you know,
commodity prices are commodities. They go zooming up and they go zooming down. The nice
thing about ilmenite is, if anything, there's a slight shortage in the world. What's been
interesting is, stockpiles have been dropping, and actually, in the last few weeks, ilmenite
as a price has actually been going up, which makes more profits. But clearly, you need
to worry about that in the long term. I mean, the nice thing is, it's kind of a very stable
usage. You know, we're going to carry on using paint, we're going to carry on using quite
a lot of paper, perhaps not quite as much as we use now. So, ultimately, I think the
actual demand profile looks pretty stable. And what's our final stock?
So, our last one is going to be Inspired Energy. Inspired Energy is a company which helps larger
companies and smaller companies actually deal with their energy workload to make the best
use of their energy, to minimize their bills. It's got a fantastically long history. Over
the last 10 years, it's built up from actually a sales of only about 3 million or 4 million
right up to 60 million or 70 million, (which is that) – but most particularly, the last
few months, the share price has peaked out. It's a market cap of just over 100 million.
It's doing about 7 million in profit, but most particularly, it's actually overlooked.
It's kind of P/E of 9.5 dropping to 8.5. It's got a yield of nearly 5, just under 5. And
it's doing everything right. The share price has just drifted down, not a problem. We can
buy some more. But energy efficiency seems like a very in
vogue thing at the moment. So, could that be a good tailwind?
It will be a tailwind. What's been interesting is, they're just fantastically good at looking
at their customers. For a long time, and I don't know if this is still true, but the
last time I saw them, they'd never lost one of their largest customers. I mean, that just
says sensational customer service in my view. And you really have to be so good at looking
after your customers. There are competitors, and so they need to be very, very strong in
their own market. Gervais, thank you so much for your time.
Thank you very much. And thanks for joining us.