Register free for our breaking news email alerts with analysis and cutting edge commentary from our award winning team. Registration only takes a minute.

Why Lang & Pattisson are shorting Glaxo, SABMiller and Drax

The Jeremy Lang and Bill Pattisson-managed Ardevora UK Equity fund has a number of contrarian positions and they explain the rationale behind three of their top shorts.

Ardevora UK Equity has got off to a strong start

Jeremy Lang and Bill Pattisson founded Ardevora in 2010 after leaving Liontrust. The pair's UK Equity fund reaches its three year anniversary in the middle of February and has delivered almost double the sector average over one year, up 41.5% versus the peer group's 23.3%. Ben Fitchew and Gianluca Monaco, managers of the fund’s short book, highlight three of their key short positions for 2014

Leave a comment!

Please sign in or register to comment. It is free to register and only takes a minute or two.

Ardevora UK Equity has got off to a strong start

Jeremy Lang and Bill Pattisson founded Ardevora in 2010 after leaving Liontrust. The pair's UK Equity fund reaches its three year anniversary in the middle of February and has delivered almost double the sector average over one year, up 41.5% versus the peer group's 23.3%. Ben Fitchew and Gianluca Monaco, managers of the fund’s short book, highlight three of their key short positions for 2014

Leave a comment!

Please sign in or register to comment. It is free to register and only takes a minute or two.

GlaxoSmithKline

‘Glaxo is a classic example of an ex-growth company we look to short. These are businesses which enjoyed relatively easy growth in the past, but that now find life more difficult and need to stretch to find growth,’ Monaco says.

‘The stretch can be seen through the lens of capital allocation – which tends to be sizable and risky for this type of company, through either massive capital expenditure or outright acquisitions. Usually this is tied with management trying to focus investor attention on the new potential growth opportunities for the business, while glossing over a weaker core business.

‘Glaxo, which has just acquired Human Genome Sciences in the US, is a darling of income investors – who prefer to focus on its exposure to emerging markets, vaccines and consumer health. However, the reality is big pharma has been very profitable in the past, but there are clear signs these types of businesses are coming under pressure.

‘In a global context, we see this in the rise of profitability of biotech. In response, the pharma giants are trying to buy biotech intellectual property by acquiring biotech companies, usually at a hefty premium. It shows how desperate for growth these companies are.’

Leave a comment!

Please sign in or register to comment. It is free to register and only takes a minute or two.

SABMiller

‘These are the types of businesses investors have loved buying through the wobblier periods over the past five years, namely safe-feeling global brands with exposure to emerging markets growth,’ Fitchew says.

‘This theme is interesting, as there is evidence of a clash between investor perceptions of risk, and the risk company managements are taking. On the one hand investors have become increasingly comfortable with the whole story of emerging markets growth propelling the big global franchises. On the other hand, more objective measures of risk show managements are stretching to find growth externally, as organic growth wanes.

‘SAB is a case in point. Its organic growth is slowing, with growth not as easy to achieve as it was in the past. Its past is the natural hook for investors. However, a classic sign of management stretching for growth was its heavily debt-funded acquisition of Fosters, where there are no obvious synergies. This is clear evidence management is becoming more aggressive in capital allocation and a sign the company is taking too much risk.’

Leave a comment!

Please sign in or register to comment. It is free to register and only takes a minute or two.

Drax

‘We see a big increase in risk taking by management, as it is putting in a lot of capex to switch from coal to biomass,’ Fitchew says.

‘This type of shift in business model has a lot of forecast risk attached to it. It is a huge capital allocation project and a large risky bet. Many investors are focussed on the opportunity rather than the execution risk. We switched it into the short book in April.’

Leave a comment!

Please sign in or register to comment. It is free to register and only takes a minute or two.
Citywire TV
Play Citywire Scotland: how wealth managers use new tech

Citywire Scotland: how wealth managers use new tech

We caught up with a few wealth managers at our annual event in Gleneagles to find out what technological innovations they are employing across their businesses.

1 Comment Play CEO Tapes: Buxton to Gilbert - ‘my Glencore quandary’

CEO Tapes: Buxton to Gilbert - ‘my Glencore quandary’

Do not miss the first two minutes of this film as Richard Buxton shares how he has been challenged by a client for owning shares in a certain company.

Play CEO Tapes: the huge opportunities for asset managers

CEO Tapes: the huge opportunities for asset managers

From tech disruption, retirement and poaching, the CEO discuss the opportunities for their businesses in this episode.

Read More
Wealth Manager on Twitter