A leading fund manager said that it might take a bid to buy a large UK blue-chip company to awaken investors to the value of the London stock market, which is oversold.
Nick Train, a well-known stock picker, once said: “Sometimes, you need to have a cathartic experience in order to change the tide.”
Train, cofounder of Lindsell Train, and manager of Finsbury Growth & Income Trust (a FTSE250 company), said that valuations for UK listed companies are egregiously poor.
Nick Train says that “sometimes you need to have a cathartic experience in order to change the tide.”
Train is the latest City official to bemoan the low valuations of UK-listed companies. This is seen as an indication of a larger malaise in London. Some listed companies have moved their listings overseas while other private UK-based firms are opting to list abroad, including Arm Holdings the famed chip design company.
It is difficult to pinpoint market catalysts. Train, Financial News reported that it could take a large scale [mergers and acquisitions activity] before investors realize their persistent selling has created an opportunity for UK Plc to be valued over a period of years. A bid for an important UK company may well trigger a shift in sentiment.
He cited the Bank of England buying shares in BP in 1975 from Burmah Castrol, which was seen at the time as giving a boost to the moribund UK markets.
Several UK listed companies, including IDS (owner of Royal Mail) and Direct Line (motor insurer), have received unsolicited bid approaches in the past year. DS Smith, a cardboard manufacturer, agreed last week to a £5,8 billion bid by a bigger rival, US based International Paper.
Pfizer made a £69 billion bid for AstraZeneca, but it was rejected.
The US private equity firm Clayton Dubilier & Rice purchased Morrisons in 2021, a supermarket group. In 2023, Schneider Electric, based in France, acquired the engineering software company Aveva, valued at £9.5 billion.
Lindsell Train, a London-based company, manages £18.6bn of client money. It also has stakes in FTSE 100 firms such as Unilever Diageo London Stock Exchange Group Experian RELX. In the 21-month period leading up to March 2023, clients pulled £5.3 billion from the business due to disappointing performance.
Finsbury’s recent underperformance is partly due to bets placed on luxury goods companies such as Burberry and Remy Cointreau. Train said recently that RELX Sage Hargreaves Lansdown Rightmove and Rightmove have the potential to become much larger companies.
Train stated that “value will win out in the end.” Train said that if there are truly global significant UK companies which will continue to compound and grow over time, sooner investors will recognize this and take advantage.
The London market has been blamed on a number of factors, including Brexit, pension fund risk-aversion, investor diversification, and a series of recent float failures.