Emma Wall: Hello, and welcome to Morningstar. I'm Emma Wall and I'm joined today by William Meadon, Manager of the JP Morgan Claverhouse Trust (JCH), to give his three stock picks.
Hello, William.
William Meadon: Hello.
Wall: So, what's the first stock you'd like to highlight today?
Meadon: The first stock I'd like to highlight today, Emma, is Fevertree Drinks (FEVR), which I'm sure is very well-known to many of your viewers. It's a provider of premium mixes for alcoholic drinks, so principally tonic water, but they now have 15 other mixes as well, Cola-Cola, ginger ale and so forth. And it's a unique company in that it is – you are really buying the brand. You are buying the brand of Fevertree.
They have an outsourced model which is designed to capitalize on what I think is the exponential growth that's available around the world to them as people move towards premium spirits, vodka, gin and whisky and so forth. They employ just 60 people. And so, if the company does well, those profits from the sales fall through very quickly to the bottom line.
Wall: And it has been a stock that's done incredibly well. How can you be sure that this is going to continue to rise rather than having missed – well, if you got in now – the bulk of that rally?
Meadon: Yeah, the stock has done very well. It came about four years ago at £1.34 and it's currently at £28. For Claverhouse Investment Trust, we started buying it at £4 a share. And so, it's gone up seven-folds since we bought it. In normal circumstances, you would sell a share like that. We have taken some profits for risk control reasons within the Trust.
But I think there's another huge potential leg of growth coming. Fevertree so far has made most of its money from selling tonic water to mix with what's called the white spirits market, which is gin and vodka. They are now going to move into mixes for the brown spirits market, so that's brandy, bourbon, whisky. And the size of that premium brown spirits market is 10 times the size of the white spirits market.
So, if you believe in the brand of Fevertree and it's worked in white spirits, if you think it's going to work in the brown spirits market, there is exponential growth there. And so, I think, if that succeeds, and I don't see any reason why it shouldn't, that is another huge leg of growth, which is principally going to come from the U.S., which is where they are moving into now and then the Far East, including Hong Kong.
Wall: And what about the second stock today?
Meadon: Second stock is Thomas Cook (TCG), the travel operator and travel agent, which I'm sure is very well-known to your viewers. Three reasons to buy this really. Firstly, the internet has transformed the travel business moving from the high-street shops to booking a holiday on the internet. And Thomas Cook under previous management were very slow in capitalizing upon that. The new management now somewhat belatedly are getting into that and that gives them not only lower costs, so they don't have the cost of the high-street, but it gives them much greater potential audience.
Current trading is going very well. A lot of resorts which were out of bounds for terrorist reasons, principally North Africa, Morocco, Tunisia, Egypt and so forth, are now coming back. Bookings there are up 100% compared to 18 months ago. And thirdly, the balance sheet has been quite an efficient in that there has been a lot of cash earning nothing against lot of debt which has been very expensive. As that debt, the expensive debt, gets paid off, the interest charge for Thomas Cook will fall substantially. Altogether, I think, that's an attractive package of fundamentals. And for some reason, the stock market doesn't rate it. You can buy it on 9 or 10 times earnings which just looks too cheap to me.
Wall: And what's the third and final stock?
Meadon: The third one is a competitor of ours at JPMorgan, it's Jupiter Fund Management (JUP), who I think have a group of very talented fund managers who on their bond side have just gone through a bit of a difficult time recently. Their major bond funds haven't performed well, and they have lost some assets there. But I have great faith they will be able to turn it around.
The stock market has really hit their shares very badly, so much so now you can buy Jupiter's shares on a P/E of 12 and as importantly, a dividend yield of 6% to 7% depending on how much they pay for special dividend. So, again, you are being paid to wait, to hold a very good-quality company, who I'm sure will trade out of this temporary difficult circumstance that they are in.
Wall: William, thank you very much.
Meadon: Thank you, Emma.
Wall: This is Emma Wall for Morningstar. Thank you for watching.
