Steven Romick (Trades, Portfolio), portfolio manager of the FPA Crescent fund and noted value investor, discloses 16 international holdings in his portfolio, providing insight into his value-based thinking on a global level.
The international holdings, which few investors report in their required filings with the SEC, range from large (his second-biggest position is South African-Naspers Ltd.) to relatively small (South Africa’s Novus Ltd. is his smallest of all positions at less than 0.01%). One of them, Aon Plc, ranked as a top-five winner in terms of returns during the second quarter.
The Crescent Fund’s structure allows for the variety the international positions exemplify. Romick does not limit it to any particular market cap, asset class or geographic location. Moreover, the existence of the stocks in his portfolio means they meet his stringent analytic criteria. As he said in a recent speech, “Twenty Years of Winning by Not Losing,” Romick employs “fundamental research on companies that can create value over time.”
According to fund literature, that means specifically: investments with compelling risk-reward proposition on an absolute basis; a flexible approach; and independent, bottom-up, fundamental research process seeking to minimize risk.
The approach garnered Romick short-term underperformance during the eight-year bull market, with a reported annual average return of 9.51% over the past five years, compared to 14.6% for the S&P 500. Long-term, he has beaten the S&P 500 with a 10.39% return compared to 9.35% on average annually.
As of the end of the second quarter, the biggest internationally headquartered stocks in Romick’s portfolio were: Naspers Ltd. (JSE:NPN, Financial), Groupe Bruxelles Lambert (XBRU:GBLB, Financial), Meggitt Plc (LSE:MGGT, Financial), WPP Plc (LSE:WPP, Financial) and Unilever NV (XAMS:UNA, Financial).
Naspers Ltd. (JSE:NPN, Financial)
Romick owned 3,281,487 shares of Naspers at the end of the second quarter. He has owned the position since the third quarter of 2014 with 3,001,708 shares. The holding represents 6.53% of the portfolio and he has an approximate estimated gain of 117% on the position.
Naspers, a global entertainment and internet company, as well as technology investment giant, owns brands such as Codecademy, Udemy and a $114 billion stake in Tencent, a Chinese internet company. The company, which does business in 120 countries, reported in the quarter ended March 31 $14.56 billion in revenue, compared to $12.2 billion in the same quarter last year, notching its fourth consecutive year of first-quarter revenue growth. Earnings grew 41% to $1.8 billion.
Naspers has a price-earnings ratio of 33.8, price-book ratio of 6.73 and price-sales ratio near a 10-year high at 16.06. The stock price is close to a 10-year high at 298,540 ZAC Thursday, having increased 48% year to date.
Groupe Bruxelles Lambert (XBRU:GBLB, Financial)
Romick holds 2,851,023 shares of Groupe Bruxelles Lambert SA after not trading shares since the first quarter of 2016 and has not sold any. He started the stake more than five years ago and has an approximate gain of 42% since the fourth quarter 2012.
GBL is the second-largest public holding company in Europe with net assets of $18.1 billion euros as of mid-2017. IT also holds stakes in companies such as Adidas Group, Pernod Ricard and Burberry. In the second quarter, GBL reported $2.66 billion in revenue, down from $2.83 billion in the same quarter one year ago. Net income also slipped to $474 million from $720 million over the same periods.
GBL ended the quarter with $1.93 billion in cash and $3.12 billion in long-term debt. It has a price-earnings ratio of 15.2 and price-earnings ratio of 2.86, near a three-year high. The company’s price-book ratio at 0.85 is near a three-year low. Its price per share is close to a 10-year high at 87.93 euro Thursday after a 10.3% year-to-date rise.
Meggitt Plc (LSE:MGGT, Financial)
Romick has held Meggitt Plc, a U.K.-based aerospace and defense company specializing in equipment for extreme environments, since the second quarter of 2012. In the second quarter, he added 1,268,931 shares for a total of 38,965,308 shares. His returns on the company are essentially flat.
The 3.95 billion-pound market cap company reported first-half results on Aug. 1, with revenue up 10% from the first half of 2016 to $968.1 million, thanks primarily to positive currency movements. Orders increased by 6% to $966.8 million for the same periods.
Organic revenue remained flat as civil aerospace grew 2% and military revenue was flat, both partially offset by a 14% decline in energy. For the full-year and medium term, the company said it reconfirmed its guidance for margin and cash.
The company ended the quarter with $1.12 billion in debt and $96.6 million in cash. It has a price-earnings ratio of 13.3 and price-book ratio of 1.6. Since trading up 11% year to date, its price has nearly reached a two-year high.
Romick possesses 10,495,478 shares of WPP Plc, with an approximate gain of 53% on the holding, which he started more than five years ago. His position equals around 2.26% of his stock portfolio.
WPP Plc is a British advertising, branding and marketing communications company, with operations in 112 countries and a $22.2 billion-pound market capitalization. The company also invests in technology, data and content, with investment stakes in companies such as Gimlet Media, VICE and Uproxx.
WPP’s stock price plunged more than 10% on Aug. 22 as it reported interim results for 2017. The company experienced a first-half increase of 6.3% for reported revenue and 4.7% decline on a constant-currency basis compared to the first half last year. Reported diluted earnings per share jumped 146.5%, or 95.1% on constant-currency basis, to 46.6 pence from the first half of 2016.
The results included a revised second quarter 2017 forecast, with the company expecting like-for-like revenue and net sales growth in a range of zero to 1.0%. It attributed the slowdown to “pressure on client spending” particularly in the “fast-moving” packaged goods sector.
WPP has a price-earnings ratio of 10.19. Its price-book ratio at 1.93 and price-sales ratio at 1.23 are both near their respective three-year lows.
Unilever NV (XAMS:UNA, Financial)
Romick’s possession of Unilever shares predates the fourth quarter of 2014, and he has not traded shares since the third quarter of 2016. The fifth-largest international holding in his portfolio, the Netherlands-based company composes roughly 0.99% of the stocks represented.
Unilever, which has a 144.6 billion-euro market cap, makes a plethora of consumer goods and products. It first half highlighted turnover of 5.5% versus the same period last year to 27.7 billion euros, with 1.09 euros per share in net income, increased by 24.1%.
Underlying sales grew 3% from the prior-year period, with growth in all categories due primarily to price increases.
The strong growth prompted the company to say that it expects 3-5% in underlying sales increase for the year as it phases in its innovation plans and accelerates its brand and marketing investment. Its forecast includes a 100 basis point improvement in underlying operating margin.
At the close of the first half, Unilever had net debt of 13.8 billion euros, with cash of $5.02 billion.
The company has a price-earnings ratio of 24.2. Its price-book ratio at 8.78 and price-sales ratio at 2.71 are both near their respective 10-year highs. At $49.13 per share, Unilever’s share price is near a 10-year high after running up 25.6% year to date.
See more of Steven Romick (Trades, Portfolio)’s international stocks in his portfolio here.
