Stockpicking with the experts

Harry Nimmo, Standard Life

Investment approach
‘Our strategy is quite prescriptive. At the top level we look for quality and we are not into blue-sky stories. Then we have a screening process that we call the matrix, examining company criteria such as price momentum, EPS growth and balance sheet strength. The third stage is then to meet the companies.’

Stock selection
‘Our top ten includes intelligent search engine designer Autonomy, valued at £1.4 billion. It has good earnings and price momentum and a good balance sheet. Although it has a high p/e and no yield, it is growing strongly and was recently signed up by BT. Slightly smaller is AIM-listed Domino’s Pizza UK & Ireland, at £358 million. It is very difficult to do home delivery well – anyone else who has tried has not done so – but Domino’s does.

‘Stanley Gibbons is an interesting situation. The company has a history of being rather sleepy and undermanaged yet has proved a major beneficiary of the internet. It provides a dealing service in very rare and high-value stamps to investors, particularly in the Far East and Eastern Europe, where there are a lot of newly rich getting into stamps for investment reasons. Stanley Gibbons has a good balance sheet with ample hidden value.

‘Safety harness company Latchways has risen a lot but the company is only at the beginning of its journey. Health and safety is the big driver right across Europe, as people working at height need to be protected, and Europe is following Britain’s lead in taking safety more seriously.

‘Goals Soccer Centres has a great model and is the best at what it does. The company has good relationships with schools as, otherwise, five-a-side football is not economic because you need too much land. This is good business: the schools use the pitches in the day and Goals pays less to have a pitch for use in the evening and weekends.’

Colin Hughes, Henderson

Investment approach
‘I look at smaller, under-researched situations, particularly on AIM. We don’t have any no-go areas: the world is our oyster.’

Stock selection
‘Velosi, which is into quality control in the oil and gas sector, is under-researched but has good momentum and visibility. The company trades on a prospective multiple of 11, whereas its peers trade at more than 15. The experienced management team came to market for working capital as they were having difficulty coping with the amount of business the group was winning. Now, they are successfully developing the business, sucking in more work and broadening its footprint.

‘A company that could be a 2008 or 2009 success is Assetco, a provider of kit and services to fire brigades. It has two high-margin 20-year Private Finance Initiative contracts with fire brigades in London and Lincolnshire. This is one of the few under-explored areas of future public outsourcing. The company is in dialogue with five or six other brigades and we hope to hear of contracts going into 2008.

‘One of our largest holdings is Zetar. We backed chief executive officer Ian Blackburn on his strategy of starting as a shell and then building a confectionary manufacturing business. As long as it sticks to its high-value-added niche areas and does not get into commoditised markets, the company should continue to do very well.

‘Management is crucial for a developing business and an examination of the non-executives can prove interesting. For instance, Electric Word has Peter Rigby, also chairman of Informa, for whom we have a high regard. It is hugely beneficial for a small company to tap into such experience and we can see the group growing from its current [£13.8 million] size to a £50-100 million company without moving out of its current online publishing area.’

Andy Crossley, Invesco Perpetual

Investment approach
‘We aren’t benchmark driven; we buy value where we find it. I tend to be contrarian, looking for out-of-favour stocks or growth that’s not been priced in by the market.’

Stock selection
‘I like a few different biotechnology stocks – such as Vectura, Ark Therapeutics and Allergy Therapeutics – because major pharma companies have real problems due to their lack of pipeline. All the major breakthroughs are in biotechs. But individually there’s a degree of risk, so a portfolio approach makes sense.

‘One that’s not very well covered by analysts is Staffline. It has a unique and quite defensive business model, supplying blue-collar workers to the food processing industry by implanting mini human resources departments into client offices. Staffline is growing fast and trades on a prospective p/e of around ten. It has just bought a competitor in the logistics and supermarket distribution centres space, taking the group’s model into a second sector - and margins in logistics are even better than in food processing.

‘Interesting, but not very well understood, is enhanced annuity business Just Retirement. Two players dominate its market, which means people are overpaying for annuities and only a fraction of those entitled to enhanced annuities receive them, as independent financial advisers [IFAs] are not aware they exist. However, regulation of IFAs is forcing them to recommend better annuities if they know about them. Just Retirement is educating IFAs and has created an equity release business that enables elderly people to borrow against their property and sign it over when they die.

‘Shore Capital has proved a winner and is good at secondary market broking – for instance it is Tesco’s joint broker. Also, its alternative fund management business receives decent fees, managing St Peter Port Capital, Puma Brandenburg, Dawnay Shore Hotels and so on, making it less risky than many of its peers.’