Richard Penny has taken a stake in budget hotel, pub and restaurant operator Whitbread despite the current coronavirus lockdown that will see the firm’s venues closed for several weeks.
Penny, the manager of the CRUX UK Special Situations fund, said he had previously owned Whitbread and knew it well. He added that the UK-wide shut down would lead to a reduction in revenue and profits but this was reflected in its share price, down from £48 to around £20.
"We think the long-term value for the company's property assets and cash is c.£40 per share, and that it has a strong balance sheet to help weather the volatility," he said in a portfolio update.
Elsewhere, Penny said he estimated there would be western economic lockdown for between three to six weeks. It would, he said, then be followed by a longer recovery phase prior to getting back "close to previous levels of activity".
"In the long-term we see this as an opportunity to buy some great growth companies at distressed prices, as long as they are robustly financed and we are comfortable with their balance sheets.
"In recent days central banks have provided liquidity to the financial system and this will, we believe, help avoid a repetition of a 2008-style banking crisis. We also believe Government budgets and bank balance sheets are far better prepared than in 2008.
"The action taken by the UK Government to provide salary support, business rates holidays and corporate loans should help corporate survival, and avoid widespread and lasting unemployment," he commented.
The fund had sold SSP Group and Premier Oil due to concerns over the businesses' ability to make debt repayments. It also reduced its holdings in IP group and sold out of Avacta Life Sciences.
It added to our holding in mid-cap Brewin Dolphin where a "severe price fall looks overdone" and where, due to regulatory capital, it has more than £200m in the bank, which "should protect it against any protracted downturn".
Penny said: "Overall more activity than normal but we think we have left the portfolio better placed for the market recovery when it comes."