Emma Wall: Hello, and welcome to Morningstar. I'm Emma Wall and here with me today is Tim Stevenson to give his three stock picks, Manager of the Henderson EuroTrust (HNE).
Hello there.
Tim Stevenson: Good morning, Emma. Hi.
Wall: So, what are your three stock picks?
Stevenson: Well, within my portfolio, which is usually round about 50 positions, there is obviously a whole spread of things, from pharmaceuticals, transport companies, some cyclical companies and so on. So, there is always a big risk in terms of just naming the three that for all I know may come up with some bad news any stage over the six months. So, I'd be very wary about sort of jumping on to any of these ideas, if anybody wants to take a short-term view, because they could well lose their money. So, be very careful about it.
But the sort of names that I like, companies that have really got sort of self-help and real big potential, so if you look at the largest position in the portfolio, which has been there for some time and has performed very strongly over the last 12 months, Deutsche Post (DPW), which is the parent company of DHL, that's a very widespread business. It obviously runs the mail business in Germany and runs that quite efficiently.
When you look at the Royal Mail in the U.K., it is interesting that Deutsche Post has only just put through its first price increase this year, first price increase in 15 years, not 15 in the last five or whatever we've had in the U.K. So their actual mail business in Germany is doing okay, but in the meantime the DHL business is doing extremely well. They have 40% market share of logistics in Asia, for example. So, that is a really good dominant position in an area like that. So that's a sort of good self-help, but also growth in related to global trade story, which I think has a got good potential.
Wall: What are the risks with that stock?
Stevenson: The risks obviously are sort of a global slowdown, more intense competition, irrational pricing from peers that are struggling, that kind of stuff. I think the risks are less in the actual mail business, obviously mail is in long-term decline in all our countries, but there still is sort of core mail business that actually carries on, going ahead. But you're receiving anyway a dividend yield of 2.5% to 3%, that’s a historic dividend, and the chances are they will increase it anyway. So you're being paid to wait and you're being paid lot more and you're getting in – putting your money 10-year German bond money, for example.
Wall: What's your second stock example?
Stevenson: Another one I would give is a Pandora (PNDORA), which is probably known to a lot of people, the jewelry company, as you can probably tell from the fact that I don’t wear any earrings or bangles, so I am not a great expert on their products, but in terms of the growth that that company is seeing and the roll-out of new products is doing extremely well. I am still confident that that would continue to grow, because he has got the right kind of price points and it is kind of affordable, but also very tasteful jewelry. So, perhaps my children will expect – my girls maybe expect some of that for Christmas, but that's given the cat out of the bag anyway.
Wall: Is that stock catching the emerging market arena as well?
Stevenson: There is a little bit of that, but more so on the emerging market theme, I would still look at a name like Essilor (EI), in lenses. They make the lenses, the glasses, for example. That's bigger in an emerging market field, because that's where people are beginning to spend more money, trying to be able to see correctly rather than sort of walking into lampposts the whole time and so on. So, they're actually upgrading their whole sort of lenses. And that's more of an emerging market play but plus the sort of developed markets are actually moving quite fast, because as you get older, then so your eyes change and you need more complex glasses, which inevitably then costs more money.
Wall: Is that quite a competitive market though?
Stevenson: The lenses market is not that competitive, actually. I mean, there are probably only about three or four players globally. But it's been much more competitive over the last 12 months which is why the Essilor shares have been performing quite badly. Partly they were quite expensive and they still indeed are quite expensive share, which is what you often find in my holdings. You pay for the quality, you're actually getting. But they've also suffered a little bit from more intensive competition from a competitor, Hoya, who was out of the market effectively because of the major flooding in Thailand a couple of years ago.
So you're now sort of getting the roll out of that effect coming through, but that certainly had an impact on the pricing in the short term. But ultimately, it's about innovation and the quality and innovating new products. For example, one of their products, which filters out harmful cancerous rays in sun. So, again that's a real kind of must-have additional coating that you can get on your glasses to protect your eyes from the harmful rays of the sun.
Wall: Tim, thank you very much.
Stevenson: Thank you.
Wall: This is Emma Wall for Morningstar. Thank you for watching.
