3 Financial Stock Picks

Rachel Winter, investment director at Killik & Co, talks about the cashless society, Chinese insurance and Lloyds with Morningstar senior editor Holly Black

Holly Black 8 August, 2019 | 12:31AM
Facebook Twitter LinkedIn



Holly Black: Welcome to the Morningstar series, "3 Stock Picks." I'm Holly Black. With me is Rachel Winter. She's Investment Director at Killik & Co. Hello.

Rachel Winter: Good morning, Holly.

Black: You've got three stocks for us today with a bit of a finance theme. Where are we going to start?

Winter: I have. So, the first one is Visa. And the reason I'm looking at this is because this morning, I read an article that said that the Royal Mint for the first time since 1972 is not going to produce any copper coins this year. And that just says to me that we really are moving towards a cashless society. So, we're again looking at these payment card providers and online payments providers and Visa is one of the best ones. So, Visa has over a 50% market share of the global payments network. And as more people start to put through card payments, they're going to make more money. So, the potential for growth there, I think, is still very significant.

Black: And they take quite a margin every time we do tap the contactless, don't they?

Winter: They've actually had to reduce that over the last couple of years. So, some regulations have come in that have caused them to take lower fees. But nevertheless, we think because the volumes of card payments are going up, for example, because now we have contactless, we're putting through much lower value transactions, that is causing them to still have a huge growth in revenue and in profits.

Black: I always have the uproar whenever there's an article about the potential that we might not have 1p and 2p anymore, and yet, they're the most annoying coin…

Winter: I know, they really get in the way. So, I'm not surprised that there is less of a need for them.

Black: So, what's stock number two?

Winter: Second one is a stock called Ping An, which is one of the biggest insurance companies in China. So, the reason for looking at this is that the gross domestic product per person in China is approaching $10,000. So, to put that in context, in the UK, it's about $40,000 per person. So, China is slowly becoming richer. And as you get to $10,000 per person, that tends to be the point when people start buying things like life insurance, because once they've got $10,000, they've already got enough to cover their food and their shelter and the essentials. And then they start to look at things like financial products. So, we foresee quite a big growth in financial products within China and Ping An is one of the major providers.

Black: And presumably as well as the rising wealth, there is a huge population there. So, the ability to grow is immense.

Winter: It's huge. So, the company listed in 2004. And since then, they've grown their earnings by 25% every single year, and that does look set to continue for the foreseeable future.

Black: And we're back to the UK for the last one?

Winter: Back to the UK, yeah. So, we're looking at Lloyds. And the reason for this is that over the last few months, people have become more concerned about a no deal Brexit and quite rightly so. But we have seen people really trying to protect their portfolios, and they've been selling out of UK stocks and moving overseas. And to some extent that is right. I think it is the right thing to do to protect yourself. But you can go too far. And I think people have perhaps oversold the UK a bit. And some of these big UK names are now looking very cheap. So, Lloyds Banking Group, at the moment, the shares are 49p, down from about 89p back in 2015. So, I just think it looks a little bit too cheap at the moment.

Black: Are the banks still battling with their reputation from the financial crisis? Is that part of the problem?

Winter: I think it is. I mean, it's been such a long time, you know, 11 years now, but people are still very wary of the huge crash that happened back in 2008. So, I think there is still some reputational damage there. You've still got some fines going through, you've still got this PPI issue in the news. So, not surprisingly, the banks are struggling with their reputation. But Lloyds actually at the moment is doing very well. Great dividend of over 6%. Shares look cheap. And it's also doing well with moving online and offering more digital services. So, potential for growth there I think is quite strong.

Black: But is the PPI drag – because Lloyds is one of the biggest fine payers of that. Is that an issue?

Winter: I think it's an issue for the reputation because the PPI claims are still ongoing, but they will be stopping very soon. And we know that Lloyds has put aside a set amount of money. So, I think we are coming to the end of the road on that. So, we have got at least some certainty there about what the total payout will be.

Black: Well, thank you so much for your time.

Winter: You're welcome.

Black: And thanks for joining us.


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.

Facebook Twitter LinkedIn

Securities Mentioned in Article

Security NamePriceChange (%)Morningstar
Ping An Insurance (Group) Co. of China Ltd Class H42.05 HKD-1.29Rating
Visa Inc Class A274.49 USD0.09Rating

About Author

Holly Black  is Senior Editor, Morningstar.co.uk


© Copyright 2024 Morningstar, Inc. All rights reserved.

Terms of Use        Privacy Policy        Modern Slavery Statement        Cookie Settings        Disclosures