In his view, it is a sector that continues to face headwinds, has made bad investment decisions, not least in overpaying for property, and is plagued by the ‘Aldi and Lidl threat’.
In particular, he is critical of Tesco’s move towards megastores and non-food items, where he said it would inevitably struggle to challenge the likes of low-cost online retailer Amazon.
Nevertheless, Godber is a value manager looking at a sector that has been beaten up of late. With stocks such as Tesco down by almost 30% over the past year, he could be presented with an attractive entry point quite soon if share prices continue to suffer.
‘The structural headwinds the industry faces are real. However, their starting point for the business is that 18 million people per week walk through the door. They have fallen a long way but they are not cheap enough yet for us,’ he said.
He said he needed to see management teams facing up to big structural questions, such as pricing, before he would be tempted into the sector.
Housebuilders on radar
Elsewhere in the market, Godber has taken advantage of share price weakness caused by the recent market rotation to top up exposure to housebuilders.
He has significantly grown the fund’s allocation to housebuilders through positions in Redrow, Bellway and Barratt Developments.
As some investors exit the sector on concerns about the impact of rising interest rates on the property market, Godber believes this anxiety is likely to prove overdone.
‘I think some of the domestic businesses will be fine with a rate rise. We are still invested in the housebuilders. That is more about the volume of houses that need to be constructed than about house prices are going up. A housebuilder doesn’t want rampant house price inflation,’ he said.
‘They are well capitalised, trading well and have become very unloved by the market, meaning the shares have been weak. That is the type of situation we love – when there is a good balance sheet.’
Godber and co-manager Georgina Hamilton have also been tempted into miner Rio Tinto on the back of better capital discipline by the management team and an improving global economic outlook.
‘We have seen analyst expectations become far more realistic and, second, there has been a dramatic improvement in economic data out of China and some of the other markets,’ he said.
While the team have avoided IPOs, they have participated in a number of rights issues, most notably Flybe’s recent £155 million share issue. Godber argues capital raisings can represent a good entry point and suggests the business is getting its balance sheet in shape.
Cable manufacturer Volex is another rights issue in which the manager participated last month. Godber is particularly positive about the company’s relationship with Apple as a supplier for iPhones, noting that Steve Jobs has transformed cables as a touch point for consumers.
‘It has had a few management issues and a new chief executive has come in. It is a total turnaround story. It had a significant debt pile and we have helped to clear that. That is the bread and butter of what a real value fund should do.’
Godber’s optimism does not extend to BT. Having held the stock since launch and benefited from its 50% share price rise, he felt the time was right to take profits. Although it is a widely held stock, he notes BT is now on a sub-market yield paying a dividend of 3%.
‘BT is still interesting in terms of its asset base and what it can generate off that but you do have to watch the fight with Sky. It is doing the right thing in terms of protecting its customer base by providing BT sports etc, but it is a battle and there are big cheques to write when you buy Champions League or whatever else,’ he said.
During the past 12 months the fund has posted a 27.3% return versus 13.6% by the sector average, according to Lipper.