Nick Kirrage Long Royal Bank of Scotland: London Value Investor Conference ~ market folly

Wednesday, June 1, 2016

Nick Kirrage Long Royal Bank of Scotland: London Value Investor Conference

We're posting notes from the London Value Investor Conference 2016.  Next up is Nick Kirrage of Schroder Recovery Fund who pitched long Royal Bank of Scotland (RBS).

Nick Kirrage's London Value Investor Conference Presentation

The Schroders Global value team are the UK’s largest dedicated value investment franchise. Nick Kirrage and Kevin Murphy co-manage the UK Recovery Fund which has beaten the FTSE 100 by 2.9% per year over their ten year tenure with about 20% annual portfolio turnover. 

Kirrage’s presentation was titled Successful Failure and reviewed some of the losers they have had over the years. They are Graham and Dodd style value investors and believe that you have to fish in dangerous waters to get great returns.

They have had several big losers including Blacks Leisure, Wagon and Avis Europe. In Blacks and Wagon they were all but wiped out but the investment in Avis Europe went on to make good returns. At last year’s conference they pitched Lonmin which has lost 90% since then.  They still like Lonmin and doubled down on it during the rights issue earlier in the year.

The nature of their deep value approach means that they will often invest early sometimes by several years and they will often look stupid.

Investment idea: Royal Bank of Scotland RBS

Things have been getting better at RBS very slowly but most people have not noticed. Loans are down by a half since 2008. The investment banking arm has been more or less shut down. Regulatory capital is up by 6% and the regulation is much more stringent. Barriers to entry in retail banking in the UK are high even though the government has been encouraging challenger banks. Customers are sticky and do not change banks partly due to laziness. Retail banking has good long term returns with ROEs of >10%. Banks have been de-risking for nearly a decade.

Be sure to check out the rest of the presentations from the London Value Investor Conference.

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