Bronze Rated Fund Ups Facebook Holding By 25%

Carmignac Patrimoine has increased its position in Facebook significantly after share price weakness

David Brenchley 3 May, 2018 | 12:56PM

Facebook mobile app, Facebook share price, Carmignac, Cambridge Analytica

Facebook (FB) will be able to draw a line under recent scandal and subsequent poor performance to emerge a winner, according French asset manager Carmignac.

Many investors fear the introduction of stiffer data protection regulation as a headwind for the likes of Facebook and Google (GOOGL), which rely on large advertising revenues.

But David Older, head of equities at Carmignac, thinks regulation will only make these big players even more dominant. “Companies will unquestionably need to set up more robust systems to manage data usage, transparency and controls,” Older told Morningstar.co.uk this week.

“Only time will tell for sure if changes in self-governance or regulatory decisions will materially impact their earnings growth potential. While we remain vigilant, a significantly negative impact seems unlikely to us at this point.”

Facebook’s share price fell to a nine-month low in late March after the recent Cambridge Analytica scandal emerged. Its market value fell by around $80 billion in just two months. The episode, that led to boss Mark Zuckerberg testifying to Congress, unsurprisingly generated a plethora of negative headlines.

Buying Opportunity

Some acted on the ‘deletefacebook’ hashtag that trended on rival social platforms. But Older does not believe Facebook’s user engagement will change. He notes that Facebook and Google attracted more than 80% of global spending on digital advertising, excluding China, in 2017.

“Their ability to target ads is appealing for advertisers as it allows them to address their clients’ needs more directly, while improving the customer experience for the user by limiting the risk of ad overexposure,” he continues.

“In our opinion, the consensus is still underestimating the dynamic of advertising revenues, which enables Facebook to provide a return on investment unmatched across the advertising universe.”

Cambridge Analytica yesterday said it will shut down its operations; what of Facebook? Well, Morningstar equity analysts reckon it can weather the storm, seeing the recent share price fall as a buying opportunity. Indeed, it saw revenues soar in the first quarter of the year.

Older agrees, revealing he upped the Morningstar Bronze Rated Carmignac Patrimoine fund’s stake in the firm by 25%. He notes that Facebook is now trading at a discount to the market multiple.

In fact, Older adds, the recent regulatory headwinds may just make the dominant players even more powerful. “The reason Facebook is welcoming regulation is because it is likely to come out as a winner,” he claims. “Regulation will just make it more difficult for competitors to challenge Facebook.”

Tech Bull Run Can Continue

Older says he’s bullish on the technology sector in general, despite the brakes seemingly being put on its long winning run in recent months. The NASDAQ 100 Technology Sector has fallen by almost 9% in the past seven weeks, compared to the wider index’s 6.75% and the S&P 500’s 5%.

But Older thinks the tech run has longer to go, as it continues to pervade in many other aspects of the economy like healthcare, retail and shopping. “Recently, the whole tech sector has been lumped together with Facebook and Amazon (AMZN), although many smaller firms have very different business models.

“This means that every correction to tech stock prices is likely to offer long-term buy opportunities to those investors able to carry out in-depth analyses of those firms’ powerful, yet diversified business models.”

Another tech stock he likes is online food delivery platform Grubhub (GRUB), which he says is taking advantage of consumers’ habits of “nesting and entertaining themselves in the home rather than the restaurant or movie theatre”.

The information contained within is for educational and informational purposes ONLY. It is not intended nor should it be considered an invitation or inducement to buy or sell a security or securities noted within nor should it be viewed as a communication intended to persuade or incite you to buy or sell security or securities noted within. Any commentary provided is the opinion of the author and should not be considered a personalised recommendation. The information contained within should not be a person's sole basis for making an investment decision. Please contact your financial professional before making an investment decision.

Securities Mentioned in Article

Security NamePriceChange (%)Morningstar
Rating
Alphabet Inc A1,131.58 USD-1.37
Amazon.com Inc1,964.52 USD-0.68
Carmignac Pf Patrimoine F GBP Acc121.70 GBP-0.44
Facebook Inc A198.33 USD-1.22
GrubHub Inc75.31 USD0.53

About Author

David Brenchley

David Brenchley  is a Reporter for Morningstar.co.uk

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