Why Royal Mail shares are a bargain right now, by investor of 2.8 billion

[TrueBlueTerrier]

http://www.whatinvestment.co.uk/financi ... lion.thtml" onclick="window.open(this.href);return false;?

Alex Wright, who runs the £2.83 billion Fidelity Special Situations fund, has asserted that Royal Mail shares are an opportunity right now because the market ‘misunderstands’ the company’s pension liabilities.

The present world of exceptionally low interest rates and bond yields is a severe negative for companies that have pension deficits. This is because, the pension fund will have large allocations to bonds, and will not be generating enough income from those bonds to meet its liabilities. The present controversy around the BHS pension scheme may also mean that policy makers attitudes to companies with pension deficits will be more restrictive.

But Wright commented that, ‘Royal Mail doesn’t have a historic pension fund deficit, when it was privatised, the pension fund was transferred to the government.’

Wright added that another company in which he is invested because the market has, in his view, misunderstood the current situation, is Shire, a healthcare company.

He opined that the market has been negative on the prospects for the company due to a recent acquisition. Wright remarked that the shares are ‘very cheap’ right now, as the valuation does not currently price in the positives from the acquisition.

The fund manager is not keen on the investment case for some of the largest stocks on the market, including tobacco and utility companies, and has also recently been selling shares in Lloyds Banking Group. Although he retains investments in Lloyds, and HSBC, he is not keen on investing in RBS.

Wright commented of RBS that, ‘the management have a tricky job there to achieve a turnaround, the long-term business model is questionable. The investment bank looks sub-scale, and probably shouldn’t exist in time. The SME business it owns is good, and the valuation of the company looks cheap, but there are other banks that look to have a more obvious endpoint for an investor than RBS, so we don’t own it.’

He commented that investors looking for a company with a more ‘defensive’ earnings, should focus on lending company Paragon. He said, ‘the shares are better value than Lloyds right now, lower economic growth is bad for Lloyds, but not necessarily for Paragon.

The largest investments in the Fidelity Special Situations fund are Royal Dutch Shell and Citigroup.