Emma Wall: Hello, and welcome to Morningstar. I'm Emma Wall and I'm joined today by Richard Pease, Manager of the Crux European Special Situations Fund, to give his three stock picks.
Hi, Richard.
Richard Pease: Hello.
Wall: So, what's the first stock you'd like to highlight today?
Pease: Well, my first stock I actually recommended this time last year. It's a German company called Aurelius (AR4), which essentially is a quoted private equity business run by a very charismatic German called Dirk Markus who has got 24% of the company. So there's real alignment there which we like. I think because of that he doesn't charge performance fees. He gives big dividends. And what he does really is to buy distressed businesses, sometimes at very nominal amounts of money.
He turns them around very successfully. His average holding period is about three to four years and his average return over that period is around 10 times. So he has been phenomenally successful. But you're not really paying for that great success because it's pretty much fully asset-backed in terms of the underlying assets for the share valuation which we like and he gives you half the super profits in dividends and we think that this year, for example, if he does what we hope, we'll get a double-digit dividend yield as well. So that will be my first pick.
Wall: And what's the second stock today?
Pease: Second one, I'd probably go to Finland actually and choose Tieto (TTEB). Tieto is an IT service business with some software. A new guy came to run it back 2011 and has done a very good job. We bought it a few months ago. We bought it on a valuation of 15 times P/E and about 5% dividend yield and it's almost ungeared and actually next year we'll earn that cash and he is able to do good bolt-ons. It's got some structural growth behind it and it's really pretty much set regardless of what happens to America or elsewhere in Europe. So, it's very much Scandinavian which we feel is one of the better geographies.
Wall: And what's the third and final stock?
Pease: The third one would probably be – it's a funny little Dutch business called Van Lanschot (LANS) which was a bank. It's essentially become an asset manager. It's much more about fund management now. They've been closing out their corporate loan book and they are almost there. They've got just I think about 55 billion of assets under management. The market valuation is €700 million.
They are very overcapitalized as they've been closing out their corporate loan book and they have gone on record of saying they will give at least €250 million back to shareholders over the next four years which really means they are going to be yielding over 8% next year. And we like the fact that the management took advantage of a recent placing of a shareholder who had to sell or buying stock and so there is an alignment as well. New management who I think have got lots to prove and it's a very cheap valuation. So I would go for those three.
Wall: And three very different stocks, three very different special situations. I suppose that just goes to highlight the name special situations can be applied in very different way to different companies?
Pease: Yes. I think I put it more so crudely. I think anything which we believe is a good idea goes into the special situations, but it may not have an immediate trigger. And I'm not quite sure how you want to define special situations, it's just things which look too cheap and a good quality.
Wall: Richard, thank you very much.
Pease: Good. Thank you.
Wall: This is Emma Wall for Morningstar. Thank you for watching.
