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From cash rich tech to 'old fashioned' banks: six Gervais Williams winners
by Annabelle Williams on Nov 30, 2012 at 10:18
Gervais Williams, MAM Funds managing director, reveals the leading small cap stocks driving performance in his Diverse Income trust.
MAM Funds’ Gervais Williams has benefited from the strong outperformance of small caps over large caps and he believes this trend will continue into next year. His Diverse Income trust has grown its net asset value (NAV) 27.9% over 12 months, versus 15.6% by the FTSE All-Share Index, putting it second out of 23 funds in the UK Growth and Income sector.
The downside for new investors is that these strong numbers have pushed the trust to a 3.3% premium, although admittedly the sector as a whole is trading on a 0.9% premium.
Here Williams picks out a few of his lesser known gems.
Fairpoint provides services such as debt management to people in financial crisis, and while it hasn’t had the easiest time in recent years as low interest rates have eased the burden on ordinary people, Williams expects the company to do exceedingly well in future.
‘They have been more effective in marketing. They have also been acquiring from other providers who have found it extremely tough going so they have been able to scale up across a range of customers,’ he says.
He has been topping up this position, and has already made money since he bought in at around 60p as shares are currently trading around 80p.
Williams admits people are quite ‘cautious’ about the book printing sector in which St Ives operates. However, he argues the company’s capacity to print short runs of books is attractive to publishers and this is reflected in the massive share price appreciation St Ives has seen.
‘The underlying business is tremendously cash generative,’ he says. ‘Once again, people just don’t believe this, but it was on about four times earnings but the share price has moved from 75p to £6.’
Eco Animal Health Group
Although Williams says this does not have a particularly attractive dividend and does not look like an income stock, he is backing this ‘hugely valuable’ company for its growth potential overseas and says ‘there is so much to come through’.
Eco Animal Health Group has just one product, a remedy for pets with upset stomachs, and as the product jumps regulatory hurdles abroad it will be able to branch out into growing markets where pet ownership among the middle class is rising.
‘Its product is becoming licensed and approved for sale in other counties and it is having sales coming through in places like China and Japan. The underlying cash generation is much stronger than the underlying profits might suggest,’ he says.
Williams likes this bank, which spun out of Arbuthnot last year, because it is ‘incredibly old fashioned’ in a good way. It provides simple services such as savings and current accounts and has no investment banking-style operations which ordinary people increasingly perceive as less desirable.
‘It’s an old fashioned bank that takes deposits and lends them out. Because it’s incredibly old fashioned, it’s a very safe place to put your money so they have a surplus of deposit on the books. It doesn’t matter [to them] if Greece is in or out of the euro – they have got no connection with any of that stuff.’
Secure Trust came to market with an 8% yield, has made several acquisitions on the strength of its cash base and is stepping in to fill the shoes of big banks that have pulled out of services like loans for car purchases.
Britain’s second largest cheese producer has had a mixed year, following an acquisition in France which did not quite work out.
However, Williams believes: ‘They have a very good management team and I like it very, very much.’
'The point is they have been investing in the business for some years,' he said, adding that he expected the company to put proceeds of the sale of its ill-fated French acquisition to good use in the UK.