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Barings' European team sounds profit warning alert

by Robert St George on Jan 22, 2014 at 13:21

‘We have 7,000 companies to choose from, so we don’t need to take stupid individual risks.’

So what has made the cut? From that universe of 7,000, Riddles and Williams have whittled down a portfolio of around 100.

One of their highest conviction calls at the moment is Intrum Justitia, a Swedish debt collector. In 2009 the company appointed Lars Wollung as chief, who set about focusing the then broad provider of financial services on a core competency. ‘He realised it was a very good company at collecting debts from other people,’ Riddles said.

Wollung developed the internal division and transformed Intrum Justitia into a pan-European group that acts on behalf of giants such as Nordea and Vodafone. Intrum Justitia is buying distressed debt for 10 cents in the euro, and posting a return on equity of around 20%.

Over the past year its share price has soared by 81%. ‘The environment was right. There was lots of business to pick up and it was in the right place to do so,’ said Riddles.

Among UK small caps, one of the pair’s top picks at the moment is packager DS Smith. It bought a Swedish rival in 2012, and is now reaping the benefits of cost synergies.

Its share price is up 62% over the past year, and Riddles is now looking for organic growth. ‘What we are hoping for now is a little bit of economic help,’ he said. DS Smith’s emphasis on the domestic consumer makes well positioned for the UK’s nascent recovery.

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