Schroders believes there is significant upside potential in several undervalued UK stocks held in it...
Schroders believes there is significant upside potential in several undervalued UK stocks held in its income funds.
Ian McVeigh, who runs the Schroder Income unit trust and Schroder Income Growth investment trust, said that stocks such as Boots and the door and window manufacturer Heywood Williams have been undervalued by the market in the flight to high growth stocks. On a discounted cashflow basis the stocks in Schroder Income are at a discount of 97%, he added.
He said: "Companies with strong cashflow have been poor performers and it has led to anomalies across the market. When sentiment swings towards value investing there will be an enormous amount of money to be made here."
Heywood Williams makes up 0.8% of the Schroder Income unit trust and the stock has been the subject of a private equity bid of 300p per share, representing a 50% premium. McVeigh said Boots was trading at an 85% discount to future cash flows and said that a huge margin collapse would be needed to make it look like fair value at its current price. He said Boots could see a 50% rise in share price and may be subject to a management buyout.