Recent years have been a difficult time for value investors and Mark Wright, co-manager of the five-star rated Seneca Global Income & Growth Trust (SIGT), defines himself as a contrarian value stock picker. “So don’t be surprised that I’m buying into things that are performing poorly recently,” he says.
The trust invests in 60 companies and Wright oversees one third of the portfolio - his focus is on the UK, and leaves the rest of the world to his colleauges. Wright likes medium-sized companies with a market cap of between £2 billion and 5 billion, which he believes have good growth prospects.
Buy: Purplebricks (PURP)
Wright has been a fund manager for almost 14 years and says he has "a database in my head" full of investment ideas. He recently bought into Purplebricks, one of the most eminent brands in the online estate agency industry. At around 98p each, Wright believes the company's shares currently look cheap.
Purplebricks was founded in 2012 by the Bruce brothers in Birmingham, when they realised that the traditional bricks and mortar approach of estate agents having stores on the high street was outdated. “They understood that estate agency fees were too high and saw an opportunity to disrupt the market,” says Wright. “And it’s an opportunity for me to buy into a technology disrupter with an attractive valuation."
He particularly likes the company because it has gained market share quickly, it is quite cash positive and its balance sheets doesn’t exhibit any risk. He adds: “The brand is extremely well known - even my mum has heard of it and she has owned a house for more than 40 years.”
The company has recently appointed Vic Darvey as its new chief executive (he previously worked for comparison site MoneySuperMarket), and he plans to exit the American and Australian markets by April so the business can focus predominantly on the UK, a strategy Wright agrees with. “The housing market has been quite depressed because of Brexit, but we think it will pick up quickly. We already saw a backdrop of political stability in January,” he says.
Hold: OneSavings Bank (OSB)
Wright bought OneSavings Bank three years ago and the investment has returned more than 60% so far. That's despite the fact the shares are actually 25% cheaper than when he invested. “The company’s underlying businesses have done exceptionally well, but the market has not rewarded the shares for it. Domestic stocks have been unloved in the last three years, but post-elections things are changing.”
OneSavingsBank has a relatively niche focus; it is predominantly focused on the buy-to-let market, and specifically those considered "professional landlords". These are individuals who have a portfolio of rental properties, rather than just one or two. While a crackdown on regulation and tax breaks on buy-to-let properties has caused many so-called "accidental landlords" (those who have inherited a property and rent it out) to leave the industry, professional landlords are often considered a safer bet by lenders.
As a new business, OneSavingsBank is not bogged down with some of the legacy issues faced by traditional lenders, which should mean it can grow more quickly. The company has offices in India, which helps cut down costs, and it has benefited from keeping a more manual underwriting process to its lending while high street banks standardise their mortgage lending decisions. Wright explains: "So if you don’t tick all the boxes straight away and the computer says no, you can’t have a mortgage with HSBC. But OneSavings bank spends more time on profiles and making sure that the risk is appropriate.”
He also approves of the firm's recent merger with Charter Business, a similar business which uses an algorithm in its lending decisions. “There are some good synergies between the two businesses. Charter Court can pass candidates to OneSavings Banks for more manual checks,” he explains.
While the company has been in the porfolio for three years already, Wright says: "We are not even near to selling it.”
Sell: Polypipe (PLP)
Wright sold his stake in Polypipe last month - a company that makes plastic pipes and ventilation products. He initially invested at the firm's Initial Public Offering, when it first listed on the stock market in 2014. The investment has produced annualised returns of 18% since then.
And while Wright is still a fan of the business, he believes that the share price valuation has started to look lofty. “The market got excited about this domestic stock; it got re-rated and the price went up quickly," he says. However, the investment hasn't been a smooth ride; shares were initially quite volatile. "It’s an example of being patient and reaping the rewards,” says Wright.
The shares may have further to go yet though; Polypipe has a handy regulation tailwind in its favour. Tight new guidelines mean building need more ventilation and Polypipe is wel placed to benefit from that. But for now, Wright is leaving the stock in his watch list - and that database in his head. "ITts a good business, but it re-rated too far after the Boris bounce following December's General Election. If the shares go down, we might buy it back."
