The UK doesn’t understand the value of its own brands, according to FE fundinfo Alpha Manager Nick Train, who says there must be “something wrong” with a country that has such a lackadaisical attitude towards fighting off foreign takeover bids for its most precious assets
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In a previous article published on Trustnet, Lowland manager Laura Foll urged shareholders to stop selling off British companies on the cheap, pointing out quality firms are frequently being let go for prices that underestimate the true value of the underlying business.
Train (pictured), manager of the Finsbury Growth & Income Trust, agrees with Foll, blaming this short-termism on a lack of understanding about the amount of value contained in a quality brand name.
To illustrate his point, he drew attention to Interbrand’s recently released list of the 100 most valuable global brands, which contained just five British names.
“I just think it’s so disappointing,” he said. “Something’s wrong. Partly it’s because we sold Rowntree to the Swiss, partly it is because we sold Cadbury too cheaply to the Americans. We haven’t understood the value of these brands. It’s sobering reading, I think, to realise how few brands we have quoted on the London market.”
He said this is in contrast to the high esteem in which brands are held by the rest of the world, pointing to a couple of recent M&A deals as examples.
The first of these is Louis Vuitton Moët Hennessy’s recent purchase of American jeweller Tiffany & Co for $16.6bn. Train is a big fan of LVMH chief executive Bernard Arnault, calling him “one of the most brilliant businessmen of the last 50 years” and describing the amount of wealth he has created as “extraordinary”.
“He has a monomaniacal focus on luxury brands and investing in those brands,” said Train.
“And then every so often on those rare opportunities when it’s been possible to acquire one of these vanishingly rare luxury brands, he has leapt and snapped them up. And I have to say as a portfolio manager, would that our record had been as good. But there are lessons to be learned from where he apprehends value.”
Train said that this takeover speaks volumes about the value in luxury brands and has reaffirmed his belief in two of his portfolio holdings: Diageo and Burberry.
The manager pointed out Diageo owns 34 per cent of Moët Hennessy, a stake he said will become even more valuable as the consumption of premium cognac and champagne rises in line with global wealth.
Meanwhile, he described Burberry as “a rare and very valuable asset”.
Performance of stocks over 10yrs
Source: FE Analytics
“It’s fascinating for us to see that there are only 10 luxury goods brands within Interbrand’s top 100 and Burberry is in the top 10,” the manager said. “If Burberry was remotely worth what Arnault has paid for Tiffany, then Burberry is still a very undervalued asset.
He added: “I’m occasionally asked by investors, ‘don’t you worry, Nick, that 40 per cent of Burberry’s revenues come from Asia? Isn’t that a high and risky exposure?’
“The way I look at it is, isn’t it amazing that this British outerwear company has such a strong brand share and brand presence in the most dynamic region in the world, which is likely to continue to be the most dynamic region of the world? Chinese tourists are absolutely the driver of Burberry sales.”
The second piece of corporate M&A activity that piqued Train’s interest this year was Silver Lake’s purchase of a stake in City Football Group, which owns Manchester City.
This $500m deal to buy just over 10 per cent of the company values it at $4.8bn, making Manchester City the most valuable sports franchise in the world.
Train said that what is “fascinating” about this deal is that Silver Lake is a private equity firm that specialises in tech companies.
“There was a joint announcement by Silver Lake and the owner of the other 90 per cent of Manchester City and it said, ‘we both believe in the tremendous opportunities to come to profit from the convergence of digital technology, entertainment and sports rights’.
“And that’s the reason why someone has put up half a billion dollars to access equity in a sports business. And I have to say, we agree. We can see the value being created. It’s the reason why we have an investment in World Wrestling Entertainment and Juventus in our global fund.”
Train said this also explains why he owns Manchester United in Finsbury Growth & Income – which, notably, is valued at just under $3bn – much less than its local rival.
“Now, I’m sure that we could have a discussion, possibly even a fist-fight outside here, as to which of the noisy neighbours ought to be more valuable than the other,” he continued.
“But there’s definitely a big valuation disparity between the two and we hope that will close by United’s share price going up.”
Data from FE Analytics shows Finsbury Growth & Income has made 651.47 per cent since Train took charge in December 2000, compared with gains of 221.72 per cent from its IT UK Equity Income sector and 166.52 per cent from the FTSE All Share.
Performance of trust vs sector and index under manager
Source: FE Analytics
The trust is on a premium of 0.51 per cent compared with 0.54 and 0.55 per cent from its one- and three-year averages.
It has an ongoing charges figure of 0.7 per cent and does not currently use gearing.