FE Analytics shows the FTSE All Share has risen 1.97 per cent over the year to date, while the FTSE 100 has managed 2.39 per cent. At the same point last year, the indices were ahead a respective 18.70 per cent and 17.36 per cent.
This year has seen the mid-cap part of the UK market significantly underperform larger companies, in sharp contrast to the events of 2013. The FTSE 250 is up just 0.31 per cent year to date, compared with it’s 25.44 per cent surge in 2013.
Performance of indices over 2014 to date
Source: FE Analytics
FE Alpha Manager Andrew Jackson, manager of the £160m Ecclesiastical UK Equity Growth fund, points out that the shifting conditions in the domestic market may have proved tricky for investors and highlights three companies which he thinks are now positioned to do well.
Jackson said: “For many stock pickers, it has been a year of transition. Stocks that were previously doing well have faltered and conversely many have matured providing added value to investors. In response, much of the year has been one of realigning portfolios to reflect the new emerging opportunities.”
“As a result, I have selected three stocks - a larger company in a sector which offers a degree of certain identifiable growth, a medium sized business with a familiar name and the characteristics of a recovery stock, and a smaller long-term growth opportunity - as my winter stock picks.”
British Land
Jackson argues that the property sector as a whole appears to have easily identifiable upside potential with significantly fewer downside risks and singles out FTSE 100 property development and investment company British Land as his play here.
“Economic growth in the UK is fuelling tenant demand for commercial properties but capital starved banks have ensured the supply of new stock has been constrained since the financial crisis; the net result should be a continuation of firming rental rates (and valuations) over the coming months,” the manager said.
He added that property companies are able to issue bonds at very attractive rates that are below rental yields, which is allowing them to lock in value.
Earlier this week, the firm reported that underlying pre-tax profits rose by 6.2 per cent to £155m during the first half of the year.
Chief executive Chris Grigg said: “Our continued outperformance underlines the success of our actions: increasing our business in London; progressing our major development programme; evolving our retail offer; and buying and selling well. Looking forward, we remain confident about the outlook for the business.”
British Land has had a strong 2014 and significantly outperformed the blue-chip index with a 23.22 per cent rise year to date. As the graph below shows, it has also been a strong performer over recent years.
Performance of stock over 3yrs
Source: FE Analytics
The AA
Jackson’s second winter pick is a stock that only recently listed on the FTSE AIM - motoring association The AA. The roadside assistance business floated at £1.4bn and was on the best received IPOs on the London market this year.
The manager says the listing was a “rather low profile” management buy-in which was backed by a very solid roster of long term shareholders and he sees potential opportunities ahead for investors in the well-recognised company.
He said: “There is evidence to suggest the business has not been working to its full potential, and as the strong operating cash flows are used to pay down high debts inherited from the previous owners there is the prospect of an attractive transfer of value to equity holders.”
“As an added bonus, when the company normalises its board membership it should qualify for a full listing, making it attractive to potential investors.”
The AA reported its maiden results in September, revealing that first-half pre-tax profit fell to £10.2m, down from £121.2m in the same period last year. Financial and exceptional costs, which include the cost of the June flotation, held back profits.
Bob Mackenzie, executive chairman, said earnings before interest, tax, depreciation and amortisation rose by £8m to £211.8m once they are adjusted for exceptionals, share-based payments and acquisition costs.
The stock has a very short track record, having only listed in June this year. But since then it is way ahead of the FTSE AIM’s 8.12 per cent loss after rising by 53.49 per cent.
Performance of stock since listing
Source: FE Analytics
Patisserie Valerie
Jackson’s final winter stock picks is cake and cafe chain Patisserie Valerie, which is run by serial entrepreneur Luke Johnson who, among his other business interests is part owner and chairman of Gail's Artisan Bakery and Feng Sushi.
Patisserie Holdings floated on the AIM in May this year under the ticker ‘CAKE’. Johnson still owns a large stake in the firm through his Risk Capital private equity vehicle.
“There is potential to open many more sites, and the balance sheet is capable of funding the growth,” Jackson said. “The immediate rating of the shares cannot be described as bargain basement but profits growth in the high teens percent should bring it down over the years.”
Johnson plans to repeat a formula that has proven successful in the past, with examples being his floatation of Pizza Express in the 1990s and selling his stake in the the Giraffe restaurant chain to Tesco for £8m.
Jackson adds that the stock is “one to buy and put the certificate in the bottom drawer for five years or so”.
Performance of stock since listing
Source: FE Analytics
As listing Patisserie Holdings has outperformed the AIM with a gain of 2.98 per cent, as the above graph shows.
