Interactive Investor

Nick Train continues to back these FTSE 100 heavyweights

It’s been a difficult time for the star manager’s Lindsell Train Investment Trust but he’s still backing them and others after a much better second half. City writer Graeme Evans reports.

12th June 2024 13:21

by Graeme Evans from interactive investor

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Unilever (LSE:ULVR) and Diageo (LSE:DGE) continue to have the support of Nick Train after their shares posted the worst performances in the second half of a tough year for Lindsell Train (LSE:LTI) Investment Trust.

Compared with a total return for the benchmark MSCI World Index of 22.5%, today’s annual report reveals net asset value per share growth of 2.1% and share price decline of 19.8%.

Train’s year-end report as investment manager focuses on the second half of this period, which he describes as “rather encouraging” after seven of the 11 core holdings produced share price growth of between 5% and 30%.

Those on the front foot include London Stock Exchange Group (LSE:LSEG) and AG Barr (LSE:BAG), up 15.3% and 18.5% in the six months to 31 March. The LexisNexis and business information group RELX (LSE:REL) continues to impress with the consistency of its growth after shares rose by another 23.4%.

The other investments in the portfolio are Mondelez International Inc Class A (NASDAQ:MDLZ), (pictured below), Nintendo, Heineken NV (EURONEXT:HEIA), PayPal Holdings Inc (NASDAQ:PYPL), Laurent-Perrier (EURONEXT:LPE) and Universal Music Group NV (EURONEXT:UMG).

The only two fallers in the period were the premium drinks group Diageo and consumer products business Unilever, down 3.6% and 2.1% respectively.

The recent decline for Diageo reflects slowing growth in the company’s biggest market of the United States, where the impact of higher interest rates has led some consumers to trade down their spirits consumption to value brands.

Toblerone, Mondelez

This trend has been particularly felt by Diageo as its strong growth in the US since Covid-19 was driven by its higher price and higher profit margin premium brands.

However, Train notes that Diageo’s total revenues are still expected to have grown from $15 billion in 2020 to stand at over $20 billion during what’s regarded as a “disappointing” year.

He said: “In other words, Diageo has grown notably since 2020 and will continue to grow. Just not in a straight line.

“We are also sure that this orientation of Diageo’s product portfolio towards premium brands is beneficial for investors over anything but the short term and look to US consumer confidence to rebuild as that economy grows.”

Diageo’s shares have fallen over 30% from their 2021 peak and the price/earnings multiple is now back to 17 times.

But Train wrote last month “that a lot of bad news is already in its price and we think it makes far more sense to be looking to buy than sell at this juncture”.

He told investors in May’s monthly report: “Diageo has unique exposure to beverages and brands that consumers want to drink more of – fine scotch, premium tequila and Guinness.

“With profit margins in the high 20%s and a return on equity of over 40%, the company turns growth into cash, funding brand building and share buybacks, thereby compounding its returns into the distant future.”

On Unilever, Train said today he is encouraged by the “air of urgency and competence” being displayed by Unilever’s new CEO, CFO and chair since their appointments in 2023.

He hopes they can deploy the strong balance sheet and cash flows in a way that reignites growth and restores investor confidence, including improving the current lowly rating of its shares.

The recent performance suggests that momentum is building after a rise of 17% since mid-April.

These articles are provided for information purposes only.  Occasionally, an opinion about whether to buy or sell a specific investment may be provided by third parties.  The content is not intended to be a personal recommendation to buy or sell any financial instrument or product, or to adopt any investment strategy as it is not provided based on an assessment of your investing knowledge and experience, your financial situation or your investment objectives. The value of your investments, and the income derived from them, may go down as well as up. You may not get back all the money that you invest. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.

Full performance can be found on the company or index summary page on the interactive investor website. Simply click on the company's or index name highlighted in the article.

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