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Five 'undervalued' UK stocks on this outperformer's hit list

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by Robert St George on Feb 04, 2014 at 12:55

George Godber, manager of the CF Miton UK Value Opportunities fund, introduces five small-caps he believes are currently undervalued.

George Godber, manager of the CF Miton UK Value Opportunities fund, introduces five small-caps that he believes are currently undervalued.

Since its launch in March 2013, his fund has returned 20% compared with an average of 13% from its IMA UK All Companies sector.

Michelmersh Brick Holdings

Michelmersh highlights our investment process and what we look for in a stock. It is the fourth largest brick producer in the UK and the only pure play brick producer that is listed. The firm manufactures 70 million bricks per year, focused on the premium end of the market.

Since 2008, the company had fallen to a market cap below the replacement cost of its assets. The reason that it was so unloved was a five-year collapse in new housing starts leading to huge reduction in brick demand, of 50% from the peak. The company was also in a weak financial position being highly indebted. We specifically target companies trading below replacement cost but, to help avoid value traps, we require companies to have a solid funding position.

We initiated in the shares after they sold some land bringing down their debt to an acceptable level. The company then raised £10 million leaving it extremely well capitalised yet, we calculate, its plant and land assets remain materially undervalued by the market. The recovery in housing construction in the UK has led to a shortage of bricks causing dramatic volume and price rises.

Cable & Wireless Communications

Cable & Wireless had a strong month, rising just under 18% in December. Despite the rally in the shares they still yield over 5% and given the financial strength of the balance sheet post the disposal programme this remains attractive relative to the wider market. The company has undertaken significant cost cutting and restructuring, with the final piece the repayment of expensive debt to come in 2014. A new CEO started at the business in January and in the event of the execution of the announced strategy we still see considerable possible upside on our returns-based analysis.

Conygar Investment Company

The business is a property company, but operates in two distinct areas. The management buys secondary property assets from distressed sellers, improves them and if appropriate will sell those assets on to realise value for shareholders. In addition the company has an exciting longer-term development portfolio all held at cost on the balance sheet. The company produced robust preliminary results early in December, confirming our view the discount to book value is unwarranted and that operationally the business is in sound shape.

Amerisur Resources

Amerisur is a Colombian oil exploration and production stock that is already producing and, we calculate, can fund its entire capital expenditure programme out of cash generated unless oil falls below c$50. The company is already producing oil ahead of forecasts, and the next phase of delivery for the company is dependent on delivery of pipeline and surrounding infrastructure rather than future oil discovery. The company has had a very high success rate on its wells so far and we believe that future cash generation is materially undervalued by the market.

RPC Group

RPC is a leading manufacturer of rigid plastic products. The company produced a solid set of half-yearly results in early December and followed up with a sensible infill acquisition of a smaller European company Maynard & Harris a few weeks later. The acquisition is materially enhancing on our analysis and we take great comfort from the management team’s ability to integrate previous acquisitions.

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  • CF Miton UK Value Opportunities Inst B Acc
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  • Michelmersh Brick Holdings PLC (MBH.L)
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  • Cable & Wireless Communications PLC (CWC.L)
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  • Conygar Investment Co PLC (CIC.L)
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  • Amerisur Resources PLC (AMER.L)
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  • RPC Group PLC (RPC.L)
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  • George Godber
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