The Tip Sheet
The Telegraph says buy Temple Bar to ride London’s rebirth, while the Times thinks Hipgnosis Songs is better off in private ownership.
ByFrank Buhagiar•07 May, 2024
Questor: The Wall Street bubble could soon burst – buy this trust to ride London’s rebirth
Talk about an eye-catching headline. ‘The Wall Street bubble could soon burst’. That’s according to the investment managers at Temple Bar (TMPL), the trust, Questor, says buy to ‘ride London’s rebirth’.
The Telegraph’s tipster highlights how US stock markets have blown away their UK counterparts over the last 15 years. The FTSE All-Share is up +326%; the S&P 500 +1,019% (sterling). What’s more, the US market now accounts for 71% of the MSCI World index; the UK just 3.8%. According to TMPL, the superior performance and wider choice are behind investors internationalising their portfolios often by indiscriminately selling UK stocks, both good and bad. This results in lowly valuations in the UK. For TMPL, ‘a low valuation is the foundation to good investment returns’ and in their view ‘makes the UK more attractive than the US, despite the gulf in their performance since the financial crisis.’
The numbers speak for themselves. US stocks are valued at over 20 times last year’s earnings. TMPL’s portfolio of 31 stocks, just eight times. Valuations, of course, can stay low for a long time, so TMPL seeks out companies that help themselves by taking shareholder-friendly action such as buying back shares – reducing the share count, enhances earnings per share, which can help share prices recover. And TMPL hopes that higher share prices will trigger higher demand for UK stocks which in turn will help revive the UK market. If TMPL’s results are anything to go by, the theory has legs – a +12.3% return for the year, well ahead of the FTSE All-Share’s +7.9%; while total returns since Redwheel were appointed managers now stand at +86.7%, compared to the index’s +50%. As Questor writes ‘Temple Bar’s performance suggests its managers are good at their jobs and we remain committed backers.’
As for Wall Street’s bubble bursting, TMPL cites Hussman Strategic Advisers’ analysis showing that by the end of 2023, ‘the US stock market stood near a 95-year high when compared to the size of the American economy.’ According to the analysis, ‘This suggests a Wall Street bubble could burst and a 12-year bear market ensue.’ Yikes!
Tempus: It’s hard to put a price on 50 Cent
The Times’ Tempus highlights how the task of valuing HIPGNOSIS SONGS'(SONG) portfolio of 40,000+ songs has been made trickier in today’s higher interest rate environment. Higher interest rates have led to higher discount rates. Higher discount rates (used to value assets) have resulted in lower valuations across the investment company space, including music royalty investor SONG. Throw in a very public spat between the board and the investment adviser and it’s easy to see why the shares have, up until recently, been trading at a significant discount to net assets.
So, with all that in mind, Tempus believes a takeover represents the best way out for shareholders. Luckily, SONG has been on the receiving end of not one but three bids, the latest from asset manager Blackstone. At 104p a share, Blackstone’s bid represents a 4% uplift on Apollo-backed Concord’s highest offer and a 48% premium to the share price before the bidding war broke out. All eyes then on Concord to see if it ups its bid for a second time but, as Tempus writes, ‘Market expectations of another bid may be beginning to dwindle. Too many investors have been burnt by Hipgnosis during its short life on London’s market. Advice Hold Why? Lack of market confidence in Hipgnosis suggests it is better off in private ownership’.
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