Alex Wright Long Ladbrokes Coral & Ultra Electronics: London Value Investor Conference

We're posting up notes from the 2017 London Value Investor Conference.  Next up is Alex Wright of Fidelity Special Situations Fund who pitched two longs: Ladbrokes Coral Group (LON: LCL) and Ultra Electronics (LON: ULE).


Alex Wright's Presentation at London Value Investor Conference

Long Ladbrokes Coral Group (LON: LCL)

Ladbrokes has been underperforming. It botched the introduction of a new IT system a few years ago. The merger with Coral that was announced about a year ago has created a bigger player and significant cost savings should be achieved. It will also strengthen Ladbrokes’s online presence. At present 70% of revenues come from offline, from the retail estate – 3000 bookmaker shops. Expect margins to improve. Coral delivered 36% CAGR between 2008-2015.

The stock is cheap due to the potential regulation of online gambling. The government is investigating Fixed Odds Betting Terminals (FOBTs).  His worst-case scenario is that the government could ban B2 games completely.  B2 games have the highest stakes and are very profitable. If banned they could lead to a 12% loss in the company’s value. In this scenario in the longer term, he believes the betting shops would remain profitable and that online would restructure and come back over time. If government regulation is less draconian Ladbrokes Coral could see anything between 50-70% upside.

Over time expect the online share of Ladbrokes’s business to grow to about 50%.


Long Ultra Electronics (LON: ULE)

Defence spending has been falling as a percentage of GDP since the withdrawals from Afghanistan and Iraq – it is at post-war low in the US and UK. Going forward there are long-term proposals put forward by governments to increase spending. It is possible that the Trump administration will bring about much higher spending.

Wright thinks that future spending will be focused on more sophisticated foes in the areas of cyber, communication & surveillance and underwater. These are key areas for Ultra.

Ultra had a setback in 2014 when its largest contract in Oman fell through. Today, free cash flow is beginning to recover. Ultra’s business had been built via M&A resulting in duplication of cost centres. Their S3 programme will better integrate the units and achieve cost savings.

The company is not particularly cheap trading on a P/E 15 but it is cheaper than most of the market.


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

Alex Wright's 2 Ideas at London Value Investor Conference

We're posting notes from the London Value Investor Conference 2016.  Next up is Alex Wright of Fidelity Special Situations Fund.  Alex pitched long Royal Mail and long CRH.


Alex Wright's London Value Investor Conference Presentation

Likes situations where capital is leaving an unloved sector. They try not to invest where there is too much supply. They like oil and gas, banks and life insurers but do not like mining and supermarkets where there is too much supply.

They look at internal changes to companies and for credible turnarounds. They like to research companies where there are lots of changes taking place – 10 or so changes are more interesting than 1 or 2. They research competitors, customers and suppliers but try not to be led by management. There are lots of opportunities for value investors in the UK at the moment.


Investment idea: Royal Mail 

A recently floated stock with 8% FCF and 5% dividend yield. There are substantial changes going on within the company and in the sector. Amazon does not want to take more business away from RM. It has already taken what it wants – about half of RMs business – only small packages remain.

Some competitors are exiting, especially in the letter delivery business. Royal Mail can make more efficiency savings. Belgium Post now has 3x RM’s margins. He is not scared by RMs pensions commitments. RM workers are already well rewarded compared to competitors and might keep the highly unionised workforce acquiescent. There are significant property assets which could be sold off. 


Investment idea: CRH 

CRH is building materials company. It is the second largest building and material company globally focusing on mature rather emerging markets.  It has a very strong balance sheet.  Projected FCF for next year 9%. CRH is a cyclical recovery play. The building industry is still recovering in the US after the recession. Things are recovering slowly in the EU. There is plenty of recovery potential still to go from a cyclical point of view.

CRH made a good purchase of assets at a cheap price last year which came out of the merger of Lafarge and Holcim. That combined with a cyclical recovery means there is potential for a recovery in margins.



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