Simon Brazier's 3 Stock Picks

Top UK fund manager Simon Brazier of Investec picks three stocks for income and growth investors - including one of the worst performers of 2016

Emma Wall 5 January, 2017 | 12:06PM
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All this week, will be bringing you a Guide to Investment Ideas for 2017; stock picks, market reactions and political forecasts from the investment professionals.


Emma Wall: Hello and welcome to Morningstar. I'm Emma Wall and here today to give his three stock picks is Simon Brazier, manager of the Investec UK Alpha Fund.

Hi Simon.

Simon Brazier: Hi Emma.

Wall: So, what's the first stock you'd like to highlight today?

Brazier: BT (BT.A), a UK telecoms company that actually in 2016 performed quite weakly. No, I don't think because of the internal performance of the Company, more some of the external pressures, the government talking about them breaking this up Openreach moving out, pressures relating to their pension fund potentially et cetera. Having said that, I think actually today this is a good quality company that has lots of opportunity to generate cash.

The cost-cutting story we've seen for nearly 10 years continues and in a world of convergence, it's now got EE on the mobile side performing very well, it has got good fixed line exposure, BT Fibre, which it is rolling out right across the UK. And not only on top of that it trades on 12.5 times earnings with nearly 4% dividend yield. A good quality company, that is going to grow its profits, grow its revenues, grow its cash flow this year, a good solid base for my portfolio.

Wall: And what's the second stock today?

Brazier: Maybe well a bit more controversial would be ITV (ITV), it's a UK media company. It actually has two main drivers. Yes, it's exposed to UK advertising, you see the adverts in between the television programs, but actually it produces a lot of content which it obviously transmits on its own channels, but actually sells around the world, the likes of Downton Abbey, X-factor being some of the most famous ones.

This is again a company that has performed badly last year, because people are concerned about the outlook for the UK economy. But I think a lot of that is now in the price. The stock trades relatively cheaply, low double digit earnings multiples. But to me, the left field thing to be, this is one of the last independent content producers left that could be readily available to anyone to buy. Liberty International owned a stake in it and to me, I believe in a world of convergence. We've just talked about BT. I can't see over the longer-term how this remains independent.

Wall: So, a candidate for M&A?

Brazier: Definitely.

Wall: And what's the third and final stock?

Brazier: The third one maybe seems to be slightly boring, but it's Reckitt Benckiser (RB.). I mean in a low growth world that we are in today, finding companies that can grow their top line, their revenue organically and more than 5% is virtually impossible. This is a company that does it.

So, those who don't know Reckitt Benckiser, it's a global consumer staples business. And it's actually positioned in some really interesting niches particularly for example in consumer healthcare, where it is growing strongly both in the developed world, but also in the developing world. Doesn't look particularly expensive, has an 8% free cash flow yield, virtually has no debt. So, lots of opportunities to use its balance sheet and it will grow. And again, as I said in this type of world, it's a stock that again makes up a decent percent of the portfolio.

Wall: Simon, thank you very much.

Brazier: Thank you.

Wall: This is Emma Wall from Morningstar. Thank you for watching.

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.

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Securities Mentioned in Article

Security NamePriceChange (%)Morningstar
BT Group PLC139.55 GBX3.37Rating
ITV PLC75.70 GBX-0.39
Ninety One UK Alpha A Acc2,854.39 GBP-0.28Rating
Reckitt Benckiser Group PLC4,393.00 GBX-1.44Rating

About Author

Emma Wall  is former Senior International Editor for Morningstar

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