The Times - UK (2020-11-14)

70 1GM Saturday November 14 2020 | the times

Money

ing of Buffettologists. But is investing in

his company the only option? We con-

sider some alternatives.

The Sanford DeLand UK Buffettolo-

gy fund follows Buffett’s approach. It

returned 81.2 per cent over five years,

outperforming the master himself, and

is second of the 212 funds in its sector.

Another option is to pick your own

stocks that pass the Buffett test. Simon

S

hares in Warren Buffett’s giant

investment company leapt

more than 9 per cent this week

on the news that it made a $30

billion profit in the third quar-

ter. Although the performance of Berk-

shire Hathaway’s shares fell short of the

S&P 500 index for the second succes-

sive year, Buffett, 90, known as “the

sage of Omaha”, still has a loyal follow-

fallen to their lowest level since 2010

and forecasters expect the overall drop

this year to be about 45 per cent.

Schroders has, however, launched a

British Opportunities investment trust,

raising up to £250 million to invest in

smaller company stocks. The portfolio

will be split 50-50 between public and

private companies and managed by

Rory Bateman, Schroders’ head of eq-

uities, and Tim Creed, head of UK and

European private equity. They aim for

annual returns of 10 per cent. The initial

public offering (IPO) of shares opened

on Tuesday and application forms have

to be in by November 26.

Two other UK smaller companies

trusts scheduled to launch this autumn,

from Tellworth and Sanford DeLand,

have been shelved.

Mark Atherton

agement and a business that is relative-

ly simple to understand.

Here are some stocks that pass the

Buffett test:

0 RELX

This UK publisher of scientific, techni-

cal, legal and medical textbooks and

materials operates worldwide. Exhibi-

tion income has dropped during the

Covid-19 pandemic, but the outlook is

positive for its other sectors. McGarry

said it benefits from the specialist na-

ture of its work and has a portfolio of

strong brands. Print continues to de-

cline and 90 per cent of revenues come

from digital publishing. RELX has a rel-

atively high forecast dividend yield of

2.8 per cent, covered 1.9 times, and a

free cashflow yield of 5.4 per cent.

0 Bunzl

This company sources and delivers

goods from till rolls to plastic cutlery to

a wide range of business customers in

the grocery, retail, health and cleaning

sectors. In June it paid back money it

took to furlough staff after its sales were

boosted by demand for hand sanitisers

and PPE, leading to a 5 per cent rise in

revenue during the first half of the year.

Among its strong points are that it pro-

vides essential everyday items and gen-

erates a high level of cash. It is expected

to pay a dividend of 2.2 per cent in the

coming year, which is 2.5 times covered

by earnings. The free cashflow yield is a

respectable 4.8 per cent.

0 DCC

This Irish conglomerate, which among

other things sells gas and electricity to

households and businesses in Europe

and the US, and transport fuel and

heating oil in Europe, has a turnover of

more than £15 billion. It has been up-

graded to a stock that will “outperform”

by market analysts at Royal Bank

of Canada. McGarry points to

its highly cash-generative

business and a very strong

balance sheet, with net debt

close to zero. Since 1994 it

has produced a 15 to 20 per

cent annual return on

capital and has

grown profits yearly at 14 per cent. It has

carved out leading positions in its cho-

sen sectors, has a high-quality manage-

ment team and owns the freehold on

many of its fuel stations. The forecast

dividend yield is 2.9 per cent, covered

2.3 times, and the free cashflow yield is

is 6.6 per cent.

0 Hill & Smith

This group of companies is involved in

the design, manufacture and supply of a

wide range of safety, infrastructure and

construction industry products. In the

past three months a number of Hill &

Smith directors have bought shares in

their company and if directors are buy-

ing shares, it only means one thing –

they think the price is going up.

It benefits from being an inter-

national group with leading positions

in markets, mainly in the UK and US,

where the outlook for future spending

is good. Cash generation is strong, bor-

rowing is low and earnings per share

are forecast to grow this year by an im-

pressive 22.4 per cent.

0 EMIS Health

EMIS develops patient records and

software. “It was able to get ahead of the

curve and redesign its systems to help

GPs, hospital doctors and other health

professionals deal with the pandemic,”

said McGarry. Among its plus points he

cites the high proportion (75 per cent)

of recurring revenue, low customer

turnover and strong market shares. It is

the UK leader in providing systems for

running GP surgeries and pharmacies.

0 Breedon

Founded ten years ago by the industry

experts Peter Tom and Simon Vivian,

Breedon builds concrete blocks and

other building products. It is the largest

independent construction materials

group in the UK with 60 quarries, 26

asphalt plants and 200 ready-mixed

concrete plants.

It benefits from operating in long-

term growth areas such as housing and

infrastructure, and is poised to pick up

work on the HS2 rail link. Although

its forecast dividend

yield is low at 0.6 per

cent, it is covered 9.5

times, so there is

plenty of scope

for an increase

• especially as
  earnings per
  share are expect-
  ed to grow
  82.9 per cent
  over the
  next year.

How to jump on a Buffett bandwagon

Follow the master’s tried and trusted philosophy

and pick your own stocks, says Mark Atherton

McGarry from the stockbroker Canac-

cord Genuity has identified ten UK and

Irish stocks that do this. He has distilled

Buffett’s investment philosophy into a

set of criteria that can be fed into their

Quest system for selecting stocks.

Quest looks for consistently high

cash flow returns, a solid track record of

earnings and comparatively low levels

of debt (a net debt-to-earnings ratio of

less than 2.5 times). They aim to follow

Buffett’s adage of buying “great compa-

nies at fair prices rather than fair com-

panies at great prices”. The Canaccord

team want companies with sound man-

Yet another income fund

is no longer a best-buy

T

he UK’s second largest platform

for private investors has ditched

the Schroder Income Fund from

its best-buy list after poor performance

and uncertainty over dividends.

The fund, managed by Nick Kirrage

and Kevin Murphy, seeks stocks that

generate income, but are also valued

below their worth. It posted a loss of

35 per cent in the year to the end of

October and is bottom of the UK Equi-

ty Income sector. Interactive said that

the fund had been removed from its

Super 60 list because it made a loss of

6.7 per cent over five years while its

benchmark FTSE all-share index

gained 8.9 per cent. There was also a

question mark over the fund’s ability to

maintain its historic yield, now 6.5 per

cent, amid the dividend drought caused

by the pandemic. UK dividends have

Warren Buffett: the

sage of Omaha

81.2%

five-year growth of Buffettology fund —

better than the sage’s own perormance