RM shares are 'too cheap' says star income fund manager

[TrueBlueTerrier]

Royal Mail shares are 'too cheap' says star income fund manager

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Francis Brooke, high-performing manager of the £1.75 billion Trojan Income fund, has started to ‘build a holding’ in Royal Mail (LON:RMG) as he feels that the shares are ‘too cheap’.

Brooke’s fund is the third best performing out of 88 funds in the IMA UK Equity Income sector in 2014 so far, and has returned 142 per cent in ten years under his management, compared to 113 per cent for the average fund in the sector, according to data from FE Trustnet. The fund has a current yield of 3.83 per cent.

Royal Mail shares have suffered steep falls since the summer. At one point this year the shares were £6.18, but hit an all-time low of £3.98 when the company released results in July.

Explaining his decision to invest in the company in his latest update to investors, Brooke commented, ‘When Royal Mail listed late last year the cornerstone investors, chosen to underpin the initial public offering and provide stability to the shareholder register, were allocated 22 per cent of the company’s shares. The sovereign wealth and hedge funds who comprised this select group of investors proved largely inappropriate and worryingly short term. Many took a quick profit as the hype surrounding the IPO faded and the result has been a retracement of the share price over the last six months.'

But he feels that the market negativity surrounding the stock is misplaced.

He remarked, ‘We believe many of the headwinds that meant these anchor investors were seen as so critical to a successful IPO (the prospect of industrial action, new competition, uncertain regulation and the growth of email) were overstated. Email
growth has been accompanied by a boom in e-commerce that is driving growth in parcel volumes, the regulatory environment will benefit from the precedents set by the partial deregulation of the European postal sector, and most importantly Ofcom has a duty to ensure Royal Mail can earn an economic return on sales, even in a more competitive market.’



He concluded his remarks with the comment that, ‘Finally, once the current strategic transformation is completed Royal Mail will become increasingly cash generative and should be able to grow the proportion of earnings that it pays out as a dividend. We believe that priced at less than 13 times earnings and yielding nearly 5 per cent this stock is currently too cheap. As a result we have started to build a holding for the fund.’

At the time of writing Royal Mail shares are priced at £4.16.

[clashcityrocker]

They are even cheaper today.

[CAMPINGBLUNDERER]

Sounds like he is trying to talk them up just before he offloads his holding

[wandle]

Sounds like he is trying to talk them up just before he offloads his holding

You really think the voice of just one investor can influence the entire stock market ?
Over 2.4million Royal Mail shares changed hands today. Sure, there were probably more sellers than buyers, which is why the price fell. But there will most definitely have been some buyers, picking up what they would see as a good long-term investment today. I'm talking about pension funds, who would think buying shares in a company that gives them (at the 400p share price) a return of 5% per annum, plus the possibility of capital growth from a rising share price, too good to resist.

Traders in shares will have different opinions on any company's share price. at whatever level it happens to be. That's the nature of markets. Some may think RM shares are 'cheap' at this level. Others may think they're still 'overvalued'.

You might have an opinion on the outcome of this season's Premiership title, and back it with a bet. Your mate may take a different view, and put his money on someone else. But neither of you can actually KNOW, today, whose opinion will prove to be correct. Likewise, share traders such as the man referred to in this article will only know if their hunch is correct, in the longer term!

[TrueBlueTerrier]

Sounds like he is trying to talk them up just before he offloads his holding

You really think the voice of just one investor can influence the entire stock market ? !

Not an Investor but a CEO could. Gerald Ratner who as a Chief Exec called his Companys jewellery crap. The comment caused the shares to drop and £500,000,000 was lost in value. Hopefully he took a big hit on his own holding.

[wandle]

Not an Investor but a CEO could. Gerald Ratner who as a Chief Exec called his Companys jewellery crap. The comment caused the shares to drop and £500,000,000 was lost in value. Hopefully he took a big hit on his own holding.

Yes, I remember that. He also said some of his stores sold earrings that were "cheaper than an M&S prawn sandwich but probably wouldn't last as long." Outraged patrons of the stores bearing Ratner's name deserted them in droves, giving their custom instead to Argos, or the Littlewoods-owned Index shops.

Some offended patrons also starting buying their jewellery from the more 'up-market' H Samuel stores, which was of course a trading name of a company owned by .... Ratners