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My top five equity bargains: L&G's Richard Penny
by Elsa Buchanan on Feb 24, 2014 at 12:21
In a series running this week we ask equity managers to reveal their bargain buys. First up is Richard Penny, manager of the L&G UK Alpha Trust.
This week, Wealth Manager is speaking to five managers about their top bargain stocks with good growth prospects.
Over the last 12 months, the fund is up 33.17%, outperforming the Numis Smaller Companies extended index, which rose 25.69% over the same period. However, over three years the fund has found the going a bit tougher, returning 29.08% compared to the benchmark's 51.35% rise.
There are several strands of undiscovered value in technology company BATM. There’s new management in its historically struggling telecoms business, it has interesting early stage ventures in cyber solutions, and owns Adaltis, which BATM hopes to restore as one of the world’s top 10 diagnostic businesses. The stock market has yet to give credit for these advancements.
We like diamonds in the undervalued and unfashionable mining sector. The industry has constrained supply, and demand is set to benefit from the US recovery and increased buying from China and India. Our favoured play here is Petra Diamonds. Petra has invested in its Cullinan mine to increase total output towards 5m carats and in the process uncovered two rare blue diamonds: one sold for $16.9 million, and the most recent is expected to fetch as much as $20 million.
Vernalis is an AIM stock that we believe has substantial upside. It raised 19p a share in cash to reformulate cough and cold remedies for the over-night market in the US with each formula expected to be worth $200m-$500m. The first may be ready to file with the US Food and Drug Administration in mid-2014.
Mobile marketing company InternetQ has had a great track record over the last three to four years. It is valued at c.12 times profits, but with profits growing at 30-40% per annum this seems low. In addition InternetQ is developing a white label music streaming service and app engagement tool Minimob, which could supercharge profits in 2014.
In December 2013 we bought Greenko, an AIM-listed Indian renewable power company which has plans to boost EBITDA six fold by September 2015. Profits will come from increasing demand for power supply in India which suffers blackouts on a daily basis; the fact that renewables can exist without subsidies in India is also compelling.