Nick Train: the value in Unilever

Investors expect “a period of accelerating global economic growth and a sustained upswing in commodity prices”, says Nick Train, manager of the Finsbury Growth and Income Trust (LSE: FGT). This has driven up the “value” and “cyclical” sectors of the UK stockmarket (in other words, cheap stocks and those that benefit from improving economic activity).

In contrast, blue-chip “quality growth” conglomerates such as Diageo are seen as “defensive” plays. Train “has no particular views as to whether this economic outlook will prevail”, but thinks these issues are “of little importance” when set against other, more important trends.

One of these trends is “the growing scale of global merger and acquisition (M&A) activity” – 2015 was “by far the biggest year for M&A in history”, but 2017 could surpass it. Already, “proposed global M&A is running at $2trn, up over 70% year on year”. Take Kraft Heinz’s bid for Unilever in February, which Train deems the most significant event of the past half-year. “Is any company too big to be bought?” he wonders. Either way, “there is more to come”.

On top of that, quality growth companies are still cheap relative to history. US investor Warren Buffett, “who knows more about valuation than most, and 3G, arguably the most successful private-equity concern over the last decade”, valued Unilever at £40 a share, “20% above Unilever’s average price over the last year”. While there “must be a price that is too high”, Train is confident it is “unlikely to be so at current levels” – stocks such as Unilever that consistently grow their dividends sustainably “are very rare” and so “very valuable”.