Investec's Mundy: Why investors need to adjust expectations for recovery stocks

Alastair Mundy, portfolio manager of the Investec UK Special Situations fund, warns against complacency in expecting flagging companies to bounce back immediately.

One of the lessons we can take from our more expensive sorties is how turnaround stories, even if successful, often take a long time to turnaround and can also shrink significantly in the process. Few turnarounds go without a hitch and a lot of the time margins can disappoint relative to original expectations, while indebtedness can grow as company management undertakes various restructuring programmes. These two factors alone can significantly affect the fair value of the equity of these companies. But another important swing factor can be a big fall in turnover. History informs...