J O Hambro Capital Management’s Clive Beagles has increased his exposure to domestic life insurers, which he believes have been
ignored by the market since Prudential announced its doomed AIA deal.
Beagles, who co-manages the £386m JOHCM UK Equity Income fund with James Lowen, opened a 5% overweight in life insurers after they fell in
value following the Prudential rights issue.
Beagles says while Prudential is attempting to expand into the Asian market, insurers such as Aviva, Legal & General and Standard Life are instead reducing the amount of new business they write and are refocusing on cashflow.
As a result, Beagles and Lowen have built up a 2.8% weighting in Aviva, 2.5% in Standard Life and 2.2% in Legal & General.
“It is these more domestically-orientated insurers which are dramatically changing their business models to write less new business, generate more cash, to make it more obvious what the cash-generative characteristics of their businesses are and return that to us in growing and regular dividends,” Beagles says.
“This is a very big change from the previous model, and yet the stock market does not want to know.
“Perhaps they have heard turnaround stories in the life insurance sector too many times over the last decade and cannot be bothered to hear another one. However, I think it is really happening this time and these stocks offer a great opportunity.”
The pair also favour UK leisure stocks and have added to positions in Ladbrokes,
Restaurant Group, Rank and Majestic Wine.
Beagles says Ladbrokes shares have been “pretty terrible” due to mismanagement, but he has upped his holding to 2% following a boardroom restructure and is convinced the firm is undervalued.
“Ladbrokes makes 30% less profit per shop than William Hill, and that is just nonsense,” Beagles says. “There are a few reasons why and they are all fixable, but the market does not want to believe in it as a recovery play because it is very domestically orientated.
“There is also a certain amount of fear over the structural shift from shops to online, where admittedly they have been a bit slow.
“That is what the new management team has been bought in to fix.”
