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David Herro’s Oakmark International Fund New Buys Update

May 23, 2013 | About:
Holly LaFon

Holly LaFon

262 followers
On the heels of his first quarter portfolio update, Oakmark International Fund manager David Herro appeared on Bloomberg Thursday reporting that he had pulled out of emerging markets due to their perceived overvaluation. Rather, he found that companies domiciled in developed markets with broad exposure to the emerging world had better valuations, which is of paramount importance to him. He gave Daimler (XTER:DAI) and Danone (XPAR:BN) as examples.

“Investors should be concerned with two things: price and the cash flow stream,” Herro said emphatically in the interview.

In the first quarter, Herro found just one company that sufficiently evinced his points of interest, life insurance company AMP Limited (ASX:AMP), though it was a significant purchase for his vast $13.4 billion fund.

The Stock: AMP Limited (ASX:AMP)

Herro purchased 47,877,000 shares of AMP Limited in the first quarter, paying $69 each on average. The holding is worth more than $259.7 million and represents 1.9% of his global portfolio. At $80.74 on Thursday, AMP stock has gained 17% from his average purchase price.



AMP oversees $172 billion in assets as a wealth management company in Australia and New Zealand, spreading into Asia, Europe, the Middle East and North America, and founded more than a century and a half ago.

Going by Herro’s criteria, the company is a strong free cash flow generator. The company has produced billions in cash flow annually for most of the past decade, though it fell to $758 million in 2012, the lowest since 2004.

AMP 10-year free cash flow data:

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The company issued a total dividend of 25 cents per share in 2012, paying out 76% of its underlying profit of $955 million, within its target range of 70 and 80 cents.

AMP Chairman Peter Mason also addressed global and emerging market growth at the company in his annual meeting address May 9. Mason reported that although global growth in 2012 fell shy of 2011, it beat expectations.

“Growth in emerging markets had shown signs of slowing, but in 2012 confidence in these markets began to return, as observers believed growth rates in those markets may have seen their low point,” he said. “China’s growth rate has recently disappointed but, at more than seven per cent per annum, it is still extraordinary.”

Chief Executive Officer Craig Dunn at the same meeting elaborated on the company’s strategies to benefit from emerging market growth:

“There are two key elements to our offshore strategy:

• first, partnering with prominent local distributors in their home markets, as we have done with Japanese trust bank MUTB, to take our investment capabilities into new markets – largely replicating what we already do successfully in Australia, and

• second, linking large savings pools, particularly in Australia and Asia, with attractive investment opportunities here and abroad.”

Valuation

AMP P/E ratio: 22.30

P/B ratio: 2.11 – approaching 10-year high

P/S ratio: 2.0 – approaching 10-year high

David Herro also added to and reduced a number of his existing positions in the first quarter. See the details in his portfolio here.

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Rating: 3.8/5 (5 votes)

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