Marlborough's Lall: The unloved 'Covid kickers' set to reboot their dividends
Too early to crystallise losses
Cineworld, WHSmith and National Express are among some of the out-of-favour stocks in Sid Chand Lall's £1bn Marlborough Multi Cap Income fund that have suffered torrid performance during the throes of the coronavirus crisis.
These stocks, among several others, account for a proportion of the fund that the manager describes as "Covid kickers", which have resided in the portfolio since before the crisis, but which he thinks are likely to recover.
Therefore, Lall does not want to crystallise any losses by selling out of them.
"For me, it is about selling at the right intrinsic value," he said. "For instance, a company we hold is Plaza Hotel, which is at a discount to its net asset value. I don't want to sell there because, with lockdown easing, if anything it will get more bookings coming through.
"Even if it does not recover to pre-Covid levels straight away, at least it is open. If it is open, it will receive revenue and, if it receives revenue, its share price will pick up."
He added that Cineworld, WHSmith and a number of transport companies - which are currently held in the portfolio - have been particularly volatile year to date, with some stocks having doubled in valuation since their 2020 lows, but which have plummeted by 20% during one month alone in the interim.
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"Really, when [these stocks] find some stability, there will be a level of earnings on which they receive a multiple that will be quite a lot higher from what it is now," Lall added.
Alongside his Covid kickers - which account for roughly 25% of the portfolio - the manager has broadly categorised his holdings into three other baskets: companies with "restock potential", resilient firms and defensive holdings.
"Within the first bucket, there are a handful of companies such as NN Group, Dunelm and One Savings Bank which, because of the way they are trading and the way they are capitalised, and because of the meetings we have had with their management, we feel confident can genuinely afford to pay a dividend.
"These are companies I feel very happy holding and, if anything, I will probably add to over time," the manager said.
"These companies can undoubtedly afford to pay a dividend, but it is more of a climate factor - they do not want to be seen paying dividends at the moment because of how it could look. This rhetoric and herd mentality we now believe is dissipating."
A prime example of this is Mondi, which Lall has held in the "restock potential" bucket since the downturn. Four days ago (6 August), the international packaging and paper company announced it will resume its dividends.
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