But companies, like empires, rise and fall and some of the UK’s biggest fund management names are avoiding those they believe are going the way of Constantinople.FE Alpha Manager James Henderson, who runs three Henderson investment trusts and the four crown-rated Henderson UK Equity Income & Growth fund, recently said that he expects the longevity and life cycle of companies to diminish further due to the increasing speed at which companies can grow without huge investments in a large capital base.
He warns examples such Amazon, Apple and Microsoft demonstrate the trend.
Here we take a look at some of the stocks whose days are numbered, according to three FE Alpha Managers.
Marks & Spencer
Henderson (pictured) thinks Marks & Spencer is a headed on a path to demise due to the erosion of its market share from smaller companies.
“I hope Marks & Spencer isn't in terminal decline but I think it probably is. It is difficult to see it raising debt from the high street at the moment,” he said.
The stock sold off heavily in as the financial crisis unfolded and is only slightly above its pre-crisis peak and the company has lurched through several disappointing reactions to large investments in its fashion business.
According to FE Analytics, it has risen just 3.59 per cent while the FTSE All Share has gained 44.82 per cent over the past seven years.
Performance of stock and index over 7yrs
Source: FE Analytics
The stock has fared much better this year after an autumn sales of its clothing and several high level departures.
But profits have now fallen for three years in a row.
Helal Miah, analyst at The Share Centre, says M&S could see a bounce back in performance as its non-core business; mostly its food retailing is profitable and growing.
“They have had problems with their core business – women’s clothes – but the food side has been driving revenues but there a number of other good things. The internet side is looking quote good and they have also begun expanding internationally,” he said.
“The food side is a long way off from being larger than the core business but I’m fairly confident it will catch up.”
“Also on valuations grounds this is still a company that has a strong balance sheet and pays attractive dividends – currently around 4 per cent. The company also owns a lot of their own property and when you look at their portfolio, the price is attractive on a book basis.”
“The company should also be a beneficiary of an improving consumer confidence.”
Marks & Spencer is held by three funds in the IMA universe as a top ten holding, all of which have the same management team.
The £2.7bn Majedie UK Equity and £470m Majedie UK Focus funds have 3.3 per cent and 4.4 per cent respectively in the stock. The £124m SJP UK Growth fund has 3.61 per cent.
James de Uphaugh, Mathew Smith, Adam Parker and Chris Field are all named on the SJP fund as well as the Majedie UK Equity fund.
De Uphaugh and Field manage Majedie UK Focus alongside Chris Smith and FE Alpha Manager Chris Reid.
Thomas Cook
FE Alpha Manager Rosemary Banyard of the Schroder UK Mid Cap and Schroder UK Smaller Companies funds believes that travel agent Thomas Cooke is a case of a company disrupted by competition from the internet.
“Thomas Cook has done a lot of cost cutting. They have hatcheted their workforce, which is down by 18 per cent in just one year and had a lot write-offs.”
“It is a case of a company that is cost cutting itself into decline. They have managed a small growth in revenue in the past year but I find it difficult to imagine how a company could lose nearly 20 per cent of its workforce and grow the top line.”
The stock has lost 44.32 per cent compared to a gain of 44.82 per cent in the FTSE All Share.
Performance of stock and index over 7yrs
Source: FE Analytics
Miah says Thomas Cook has started to recover but the company’s exposure to Germany is worrying due to the Ukraine/Russia stand off as German consumer confidence has diminished and so he is wary of the company at the moment.
“The company also has large amounts of debt and that is part of the reason they are still not paying a dividend.”
“There wasn’t a dividend in 2013 and it seems like there won’t one this year and if there is it will be very small.”
Thomas Cook is held by two IMA funds as a top ten holding.
The £971m Franklin UK Mid Cap, which is managed by FE Alpha Managers Paul Spencer and Mark Hall and Richard Bullas, and the £166m Invesco Perpetual Global Opportunities fund, co-managed by FE Alpha Manager Stephen Anness and Andrew Hall.
Quindell
Neil Hermon, manager of the £500m Henderson UK Smaller Companies Investment Trust, thinks the controversial AIM-listed Quindell could be finished within months.
The company supplies software for use in the insurance industry.
"I wouldn't invest in Quindell if you paid me. I have never understood the business and the cash dynamics of it have been appalling and I don't understand the accounting,” he said.
“At its current rate of cash-burn it will be bust before the end of the year."
The stock has had both a meteoric rise and fall since its initial public offering in May 2011.
Until March 2014 it had risen 1,500 per cent but subsequently has fallen almost 75 per cent since accusations against the company caused a widespread sell-off.
Performance of stock since May 2011
Source: FE Analytics
Quindell's share price decline followed allegations of accounting malpractice on a analyst note from the opaque Gotham City Research, which admits it is involved in short-selling but denies malpractice.
The note, which doesn’t carry its author’s name, said that Quindell was deriving a sizable amount of its revenue from companies owned by its CEO Robert Terry.
Miah said the stock is a hugely contrarian play and that the lack of transparency needs to improve.
“Transparency is a key issue here which is why you saw Gotham city release their report which did raise a few questions,” he said.
“The management have completely refuted allegations but when we look at their customers – the big insurance companies – those companies would know if there was a problem but we have not seen them react in any sort of way which provides some reassurance.”
“However, the fact is the share price has plunged by a huge amount and I think there may be something in the background.”
The stock isn’t held by any managers as a top-10 holding.
