Majedie Investments appointed Marylebone Partners as its manager in January 2023 to invest in compelling long-term opportunities across highly differentiated, liquid-return sources. These comprise external managers, global equities and special investments regularly marked to market. Marylebone seeks returns exceeding inflation by at least 4% in the medium term.
Now that 13 years of ultra-low interest rates and quantitative easing are a distant memory, the manager believes that many previously successful investment strategies may struggle to deliver attractive real returns. Following the recent narrow focus on artificial intelligence (AI)-related mega-cap stocks, Marylebone sees some attractive valuations for quality compounders and companies undergoing change that are unappreciated by markets. These form a major part of the portfolio.
Many technology-related sectors have been overshadowed by the performance of mega-caps and now provide attractive entry points, while within the mid-cap universe, many stocks that have been shunned are attractively valued with good growth prospects.
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Look beyond AI stocks
The IT industry is rapidly expanding, with increasingly integrated systems driven by the growth of cloud, cybersecurity and AI-related investments. Cancom (Frankfurt: COK) is well-positioned to benefit from this trend as a technology-agnostic company. It plays a crucial role as a partner for small and medium-sized enterprises (SMEs) by helping them with sourcing, building and managing technology infrastructure. This comes when mid-sized companies are expected to increase their IT investment expenditure.
The company is highly cash-generative, with a relatively low capital expenditure run rate. Its working capital position continues to improve following Covid-related supply-chain disruption. After a period of turbulence caused by high turnover in senior management, the leadership team is stable.
A similar case can be made for Computacenter (LSE: CCC), which is a value-added reseller of technology and IT infrastructure. It also serves as a consultant and IT services provider, with its primary markets being the UK and Germany. It acts as a single point of contact for public-sector companies and other enterprises to engage with technology providers such as Apple and Microsoft.
Computacenter leverages its size and long-standing relationships to negotiate better prices for customers. Moreover, it provides consultancy support for technology and infrastructure expansion needs. Long-term relationships are built and maintained by acting as a one-stop shop in providing ongoing IT management support. The company generates a free cash conversion rate of close to 100%, and earnings have compounded at an annual 17% since 2005.
Basic-Fit (Amsterdam: BFIT) is a low-cost operator of over 1,500 gyms across six countries in Europe. It was established by former tennis professional René Moos with a view to making fitness accessible to “everyone, everywhere”. Moos continues to lead the company and is its largest shareholder. Basic-Fit can offer affordable, high-quality membership thanks to its “no frills” development and operating model. This model is well established in its mature markets of the Netherlands and other Benelux countries. If Moos and his team can deliver on their return on capital and growth targets in less mature markets, notably France, there could be significant upside for shareholders.
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