Interactive Investor

What I think of UK bank shares and a recent value purchase

24th March 2022 12:15

Kyle Caldwell from interactive investor

Ben Whitmore, fund manager of Jupiter UK Special Situations, explains how he sorts the wheat from chaff when investing in UK value shares. He also discusses where he is finding the best opportunities, UK bank shares, and a recent new stock purchase.

The fund is a member of interactive investor’s Super 60 list.

Kyle Caldwell, collectives editor at interactive investor: Hello. Today I'm speaking to Ben Whitmore, fund manager of the Jupiter UK Special Situations fund. Ben is a contrarian investor who invests in UK-listed value shares. So firstly, Ben, could you explain how you go against the crowd?

Ben Whitmore, fund manager of Jupiter UK Special Situations: Well, Kyle, thanks very much indeed. Well, when we go against the crowd, we're really just looking for things that are lowly valued and unpopular in the stock market, and we do that with a couple of screens. We screen for lowly valued shares using a Graham and Dodd screen, and that is lowly valued using average earnings. And we use a Greenblatt screen, which is the best combination of low valuation and high returns. And we run those once a month to drive our work.

Kyle Caldwell: And when you are running those screens, are there any key attributes or characteristics that you're looking for to help you find the potential winners and avoid those cheap shares that potentially have poorer recovery prospects?

Ben Whitmore: So the screens are just a guide that if you like, they're like a map, and they're saying, look in these areas, this is where you're more likely to find good opportunities. And the bit you're talking about, how do we separate what might be a good opportunity from what is not a good opportunity is the analysis around the franchise, the balance sheet, the cash flows and subjective measures around whether we think the profits can recover or not, or whether something has been permanently impaired in the business. So it's the screens (that) guide us to the right areas, but from there we're looking on an individual company by company basis to find the ideas.

Kyle Caldwell: And where are you finding the best value opportunities at present? Are there any sectors or themes that you would highlight? And could you name a couple of stock examples?

Ben Whitmore: So there's been very wide valuation dispersion in the market for the last few years. And by dispersion, I mean, the most highly valued companies are worth multiples of the most lowly valued. And this has happened across all sectors, not just in one or two sectors. So we can find examples in almost every single sector where there are very lowly valued shares. That might range from easyJet (LSE:EZJ) to BP (LSE:BP.) to GlaxoSmithKline (LSE:GSK), but in all of those cases they are very lowly valued.

Kyle Caldwell: There is one bank share in the top 10 holdings, Standard Chartered? Do you invest in the other four UK major banks? And if so, why are they not in the top 10?

Ben Whitmore: So we have a spread of investments, and we do have investments in other banks. Standard Chartered (LSE:STAN) is the one we favour the most at the moment because for the first time in a very, very long time, the Asian-based banks are on discounts to the UK based banks. And that's a variety of reasons around a much harder lockdown around coronavirus, around worries about China. But that's what we see as the most attractive franchise at the moment.

Kyle Caldwell: And have you been making any changes to the portfolio in response to the high inflation levels and rising interest rates?

Ben Whitmore: No, we're not macro investors. And so although the last few weeks has caused some uncertainty, we let the screens drive for opportunities. So if share prices are moving sharply, we'll pick them up that way and reassess them and look at each individual company. But we're not wanting to make macroeconomic forecasts or base our portfolio off macroeconomic decisions. We want to really concentrate on having a spread of lowly-valued individual companies.

Kyle Caldwell: And what have been the newest holdings that have entered Jupiter UK Special Situations?

Ben Whitmore: So I can't say this exactly the newest holding, but recently we've purchased a stake in ITV (LSE:ITV) that is the broadcasting business that we know. They also have a very big studio production business, making dramas and shows for broadcasters around the world and for the likes of Netflix. That business, people are very worried about that business because the ability to look at a whole variety of mediums at the moment, whether it's TikTok or YouTube, the worry is, is that ITV will no longer be able to command an audience. But so far, they've proven pretty adept at monetising those audiences. They've actually just produced record revenues in their broadcasting business. And so, whilst there are fears the valuation is very, very low and we think that's an attractive risk-reward.

Kyle Caldwell: Ben, thank you very much for your time today.

Ben Whitmore: Thank you very much indeed.

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