The government floated 60 per cent of the Royal Mail group in October 2013 at 330p per share, valuing the business at £3.3bn, but several investment banks at the time made estimated valuations up to £1.5bn higher. Its share price has had a strong run since issue and the company recently said it was confident about hitting targets after posting a 2 per cent rise in revenues for the last nine months of 2013.
“We made two purchases of the stock last week because we think there is value in the stock the market is not considering,” he said.
“Specifically, it is still underestimating the potential operational leverage of the business and the hidden value within the balance sheet.”
According to FE Analytics, the stock has appreciated 27.81 per cent since the end of the first day of trading and is up 77 per cent from its opening price overall.
Performance of stock vs benchmark since issue
Source: FE Analytics
The manager of the £58.9m fund also added a position in the Rank Group, the gambling and leisure business and owner of Mecca Bingo Grosvenor Casinos.
He expects it to be a major beneficiary of last week’s budget in which the chancellor, George Osborne, halved duty on bingo to 10 per cent.
Miton UK Value Opportunities is relatively new, having launched in March 2013, but has had a strong run in this relatively short period of time.
It returned 26.02 per cent over since its launch compared to a 13.47 per cent average return in its IMA UK All Companies sector.
Performance of fund vs sector and benchmark since launch
Source: FE Analytics
Alongside Georgina Hamilton, who co-manages the fund, Godber used to work with Henry Dixon of the top-performing Matterley Undervalued Assets fund, a top-quartile performer in the IMA UK All Companies sector for four out of the last five years.
Last week also saw a general fall in the FTSE All Share of 1.25 basis points prompting managers to ask themselves if there was a general buying opportunity in the markets.
However, Godber says in the near term markets, especially at the high cap end of the spectrum, to remain a stock-pickers markets.
“We are asking ourselves, can we find value in specific stocks but also is there value in the market as whole.”
“You’re starting to see greater differentiation in the market in terms of returns from actual stock-picking and performance over the last 12 months.”
“There has been a lot of better returns lower down the market cap spectrum, with returns in the AIM much higher than the FTSE 100.”
“That will continue because they are the domestic focused businesses and there is a clearer story in the UK than in international markets.”
“There are still opportunities within the FTSE 100 but I do think the smaller end of spectrum is where we have more conviction at the moment.”
Godber thinks certain areas of the market have become overvalued and are likely to be hit this year but he’s not tempted to see it as a buying opportunity.
“I can see why the overall market has been struggling a bit recently because when you have many businesses of high valuations and you get a knock there’s less room for you to hide.”
“With these businesses any sort of knock to the market and the share price of the business is going to get whacked.”
“We’ve seen since November 2013 concept stocks such ASOS do amazing well but these are not good places to look for value.”
“It’s hard to make broad based assumptions but what is true is that in a rising rate environment high expectations become harder to meet. And the ability to meet expectations is very important.”
Whilst he thinks there are pocket of over valuations, Godber is sanguine that there still pockets of undervalued companies.
He is looking to take positions in UK supermarkets which he believes will offer attractive returns, despite a recently slew of profit warnings.
Performance of stocks vs index over 1yr
Source: FE Analytics
“Like anyone with a value hat on we are looking very closely at the supermarkets to see if they will fall below book value, in which case we’d look to take positions.”
“They are becoming more appealing but we’ve not taken any positions yet as we still think they’ve got a way to go.”
“Morrison’s out of the all them has the most conservative valuation in terms of the amount it has sold on operational leases, which is one of the key things we look at.”
Ongoing charges on the Miton fund are1.1 per cent.
