Holly Black: Welcome to the Morningstar Series "3 Stock Picks." I'm Holly Black. With me is Richard Pease. He is Manager of the Crux European Special Situations Fund. Hello.
Richard Pease: Hello
Black: So, it seems a crazy time to be talking about stock picks but that's what we're going to do. Where would you like to start?
Pease: Well, I'm now sort of pushed which ones to choose, because obviously, having seen the markets being all over the place, there's more opportunity than usual. And what I thought I might do is give you two stocks which have crudely speaking halved which we like and still think there's a great future and one stock, which is very robust and a good long-term structural grower. And it's always difficult what risk you want to assume and what time scale you're prepared to wait for. But I think this gives you a bit of everything hopefully.
Black: Okay. Well, let's start with one of ones that's halved and I hope you are invested after that happened not before.
Pease: Certainly not, but we've added to it. It's another friend of mine called Aalberts Industries. It's a sort of a couple of billion market cap sort of size. I have been able to get hold of its CEO very recently in a telephone conversation. And it's an industrial Dutch company but it's very global, everything from sort of rolls to making things more eco-friendly in terms of construction and lots of other things in between. But they have quite a big U.S. base too as well as runs in Europe.
Anyway, I really had two questions for the CEO. One was, are you going to be profitable this year? And I got the Dutch (indiscernible) for. Of course, we are, which is – that's the starting point. And the second question really was, do you think you can get back to last year's earnings next year? And the CEO said, actually, not only do I think we can get back to last year's earnings next year, I'd be a bit disappointed if we didn't improve on it.
Black: I suppose this is actually a really interesting time to talk to company management because you see how they do handle a crisis.
Pease: Absolutely. And in this case, he's also bought stock personally in the company more recently. He's got stock already but he's bought more. So, that would be my first one.
Black: And what's stock number two?
Pease: My second one would probably have to be Spie. Spie is a French-based but European-wide outsourcing story. It does some hard outsourcing things like maintaining air conditioning, connecting to the grid, maintaining naval bases and all sorts of things in between. But anyone who uses an office or a warehouse tends to have to have certain technical things being maintained or looked after into the store. So, that's where they come in. What we like about that company is that in normal times they have a very high degree of recurring revenue because it's sort of thing people just have to have that. In times like these, obviously, if no one is going to work, obviously it's hit quite hard, but still people have to do certain things unless regardless, so essential services.
And I think my third choice would be a sort of solid well-funded Swiss market leader in inspections…
Black: So, this is the one that hasn't been hit quite so hard?
Pease: Yes, it hasn't been hit quite as hard. This is a company called SGS. It's quite a mainstream loved stock. Market cap terms, I think it's about CHF16 billion. It looks like it still would be able to pay a dividend which would be over 3% for this year and growing. And we were quite encouraged as we spoke to the finance director who is relatively new. And he is very positive about some of the bolt-on opportunities which could be very accretive. And so, we should get better growth once we are back to normality than the market perhaps appreciates.
Black: And presumably, any company that can maintain their dividend at the moment is really attractive to an investor?
Pease: Well, I think so. And I think this particular company – you never quite know – I hate making promises because you never quite know what will happen. They may not do it for another reason just because they want to use the money to buy the stock back or use the money to buy acquisitions. But certainly, they are in a very robust financial position. And if you look at the longer-term record for SGS again, it's very impressive. We've made a lot of money back in this company over 20 years and it's a sort of classic example of a global market leader doing all the right things.
Black: Super. Richard, thank you so much for your time. For Morningstar, I'm Holly Black.
