UK equities present deep value opportunities
The guest argued that the UK stock market is one of the cheapest globally due to ten consecutive years of active equity outflows forcing non-fundamental selling.
The argument
This structural outflow has created significant valuation gaps, exemplified by UK companies trading at deep discounts to US peers and private market values. For instance, UK laundry leader Johnson Service Group trades at 8x EV/EBITA compared to US peer acquisitions at much higher multiples, while aggressively buying back shares.
The thesis, stress-tested
✓ What validates it
- ✓Active equity flows to the UK market turning positive
- ✓A strategic acquisition bid for UK value targets like Johnson Service Group at historical private market multiples
▸ Risks discussed
- ▸Continued active redemptions from UK managers forcing further non-fundamental selling
- ▸Economic slowdown in the UK impacting industrial laundry volumes
Hear it yourself
"Spend a lot of time tracking m and a deals, trying to buy companies at big discounts, to observed takeover multiples. And then the other thing that I would add, probably two things to the investment process that I think is important. One is that, we're pretty chicken when it comes to leverage. So, generally, when we're screening for for new ideas, we're looking for companies that have net debt to EBITDA below two and a half times. If you study our traditional portfolios, the vast majority of the companies, would be investment grade rated, and many of them actually have net cash balance sheets."
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