Latest news with #Questor
Telegraph
a day ago
- Business
- Telegraph
We've already doubled our money on this defence company, but it's more attractive than ever
QinetiQ's share price has risen by 121pc since Questor tipped it as a 'buy' during September 2017. In doing so, the defence contractor's shares have outperformed the FTSE 250 index, of which it is a member, by 110 percentage points. Given that the stock currently trades on a price-to-earnings (P/E) ratio of 19.1, versus 12.5 at the time of our 'buy' recommendation, many investors may naturally assume that it is now a far less appealing purchase than it was nearly eight years ago. Such investors would, furthermore, be likely to baulk at the idea that the stock is in fact a far more attractive purchase today than it was all the way back in 2017. Indeed, some stock market investors continually struggle to separate 'price' from 'value'. Just because a stock is cheap does not necessarily mean it is a worthwhile purchase. Lacklustre financial performance or weak financial standing, for example, can mean its earnings multiple moves ever lower. Conversely, expensive stocks can offer excellent value for money if they have strong profit growth potential and solid fundamentals. In QinetiQ's case, this column firmly believes that it is far easier to justify a P/E ratio of 19.1 today than an earnings multiple of 12.5 at the time of our original tip in 2017. For example, in the two financial years following our initial recommendation, the stock posted annualised earnings growth of just 4pc amid a rather humdrum performance from the defence industry. Therefore, it was only deserving of what was essentially a modest market valuation. In the current geopolitical climate, where conflict in Europe and the Middle East is prompting rapid increases in military spending across developed economies, the company is expected to produce annualised earnings per share growth of 17pc over the next two years. This means that its P/E ratio could realistically move substantially higher as investors continue to factor in an extended period of elevated geopolitical risks and rising military spending. Furthermore, the full impact of the current era of monetary policy easing is yet to be felt due to the existence of time lags. With further interest rate cuts likely to be ahead, the pace of GDP growth may improve, thereby providing a further catalyst for defence spending due to it being expressed as a percentage of economic output. Even if QinetiQ does not deliver any further increase in its earnings multiple, a 17pc annualised capital gain, derived from its prospective earnings growth rate, would be highly satisfactory. With the company's latest trading update showing that its financial performance during the first quarter of the financial year was in line with expectations, it appears to be delivering on its potential. Encouragingly, the firm reported that its cost savings initiative is on track. This should lead to a 140 basis point increase in the company's operating profit margin, which signals an improving competitive position, so that it amounts to 11pc this year. It is also making progress in restructuring its US operations, while a record order backlog of £5bn suggests the firm has an upbeat long-term outlook. With net gearing of just 21pc and net interest cover of around 13 last year, the company has a solid financial position through which to reinvest for long-term growth. A sound balance sheet further suggests that it is worthy of a premium valuation relative to other mid-cap stocks. Although two thirds of the company's sales are generated within the UK at a time when some of its sector peers are more geographically diverse, Questor is upbeat about the economy's performance. Sticky inflation is widely expected to come to an end over the medium term, with the Bank of England having licence to implement a looser monetary policy in the meantime. Of course, this does not mean that QinetiQ's share price is immune to heightened volatility in the short run as a global trade war continues to play out. However, given the increasingly positive prospects for the defence industry, as well as the company's sound fundamentals, it represents a highly appealing investment opportunity for the long term. Ticker: QQ Share price at close: 498.4
Telegraph
23-07-2025
- Automotive
- Telegraph
Auto Trader has been selling cars too quickly for its own good
The UK economy's outlook is significantly more positive than many investors realise. For example, inflation is set to gradually fall to the Bank of England's 2pc target over the next 18 months. This should allow further monetary policy easing to take place that, alongside the impact of recent interest rate cuts, boosts economic growth. Clearly, the existence of time lags following interest rate cuts, fiscal policy uncertainty and ongoing geopolitical risks could weigh on the UK economy's near-term performance, but in an era of lower inflation and an increasingly loose monetary policy, the direction of travel for the profits and share prices of UK-focused firms is highly likely to be materially upwards over the coming years. As a result, Questor continues to be bullish about the prospects for Auto Trader Group. The online automotive marketplace is well placed to benefit from an increasingly upbeat consumer outlook amid further positive real-terms wage growth, particularly as it enjoys an extremely dominant market position. In fact, it is 10 times larger than its nearest competitor, with its website home to over 75pc of every minute spent on automotive marketplaces in the UK. Furthermore, its latest annual results showed that return on equity was around 50pc. This is exceptionally high and, even more impressively, was achieved in tandem with extremely low debt levels. In fact, the firm's net debt position from 2024 reached a net cash position amounting to £15m in 2025. This means the business is capable of continuing to invest in its operations even if the aforementioned geopolitical risks come to the fore in the short run. A strong competitive position meant the company was able to further raise prices during its latest financial year. Indeed, its significant pricing power will allow it to benefit from any improvement in the operating conditions and profitability of automotive retailers as interest rates and inflation both fall. With a constant stream of new products being launched, including those that harness artificial intelligence, it seems likely that the firm will at least maintain its substantial competitive advantage in future. Of course, investor sentiment towards Auto Trader has been highly erratic of late. The firm's latest annual results prompted a sudden 11pc share price slump on the day of their release in May. Although the company posted a 12pc rise in earnings, revenue growth dropped by nine percentage points to 5pc. This was partly caused by vehicles listed on its platform selling at a faster rate than in the prior year, thereby reducing demand for the firm's advertising opportunities, which could persist for at least part of the current year. While the stock's price has only partially recovered from its slump, it has still risen by 78pc since Questor tipped the company as a 'buy' during September 2018. In doing so, it has outperformed the FTSE 100 by 61 percentage points. Despite this, the company's price-to-earnings ratio of 26 is unchanged from its level at the time of our original tip. While it is undoubtedly a generous rating compared with many other large-cap shares, even while the FTSE 100 trades close to a record high, this column believes it still represents fair value for money. The company, for example, is due to deliver annualised profit growth of 11pc over the next two years. Furthermore, its solid financial position and clear competitive advantage mean it is a high-quality business that deserves a premium rating compared with the wider index. Of course, investors should not conflate an upbeat UK economic outlook with a period of plain sailing for share prices. Even during its most bullish periods of yesteryear, the stock market has still experienced bouts of extreme volatility. Similarly, the economy's improving performance is unlikely to be smooth progress, with inflation set to prove sticky at times and interest rate cuts likely to take many months to fully impact GDP growth, wage growth and, ultimately, the operating environment for UK-focused firms. However, in Questor's view, investors who back high-quality UK-focused stocks such as Auto Trader, take a long-term view and accept elevated volatility in the short run are likely to ultimately be handsomely rewarded.
Telegraph
22-07-2025
- Business
- Telegraph
Frasers Group is on sale – but you'll have to be brave to buy
For years, Sports Direct owner Frasers was an immense force on the British high street. It made big money and investors were richly rewarded, but the past 12 months have been more challenging, and the shares have slipped back to bargain basement territory. To Questor, this looks like an opportunity for brave investors to pick up stock for peanuts. Anyone prepared to look through near-term issues might find a lot to like. Frasers is not only a master of getting consumers to fill their baskets every time they shop in its sporting goods stores, but has also successfully moved upmarket. What's truly exciting is the potential to be a much bigger name overseas, and it's this international growth potential that seems to have been missed by the market so far. Success in the UK lays the blueprint to apply its retailing expertise in multiple geographies, and diversification in terms of where and how it makes money is only a positive from an investment perspective. Patience will be required, as the ongoing challenges from its latest results prove. Employment-related costs have gone up in the UK as a result of the most recent Budget, which means there is pressure to find new ways to save money and make operations more efficient.
Telegraph
18-07-2025
- Business
- Telegraph
This trust's dividend has beaten inflation for a decade – but its share price needs a boost
Questor is The Telegraph's stock-picking column, helping you decode the markets and offering insights on where to invest. The FTSE 100 is in the midst of a record-breaking year. After posting desperately poor returns for what felt like an eternity, it has made several new all-time highs during 2025. Indeed, it appears as though investors are finally beginning to realise that a globally-focused index that trades at a discount to its peers is likely to be a worthwhile prospect. Of course, the chances of the FTSE 100 posting further record highs may seem somewhat distant amid an ongoing global trade war that could yet heat up after an extended pause. This may prompt many investors, particularly those seeking a reliable income, to determine that now is an opportune moment to exit UK large-cap shares while they trade at more generous price levels vis-à-vis their recent past. In Questor's view, though, long-term income investors are being more than fully compensated for the heightened risk of elevated volatility over the coming months. The index, for example, offers a dividend yield of 3.4pc – this is 2.8 times that of the S&P 500. The FTSE 100 also remains cheap relative to other major large-cap indices, with many of its members offering significant long-term capital growth potential, as well as dividend growth, amid the current era of monetary policy easing that is taking place across several developed economies. Therefore, sticking with UK-focused investment trusts such as Schroder Income Growth could prove to be a sound long-term move. It has an excellent track record of dividend growth, with shareholder payouts having risen in each of the past 29 years. Given the scale and variety of geopolitical challenges experienced in that time, it seems to be well versed in overcoming periods of heightened uncertainty. The company's dividends, furthermore, have increased at an annualised rate of 11.3pc over the past decade. This is 50 basis points ahead of annual inflation over the same period, thereby meaning the trust has met its aim to provide positive real-terms dividend growth. And with a dividend yield of 8pc, it offers a substantially higher income return than the FTSE 100 at present. The company also has a solid long-term track record of capital growth, thereby meeting the other part of its aim. Its net asset value (Nav) per share has risen at an annualised rate of 11.3pc over the past five years. This is 50 basis points ahead of the FTSE All-Share index, which is the company's benchmark. Given that its shares currently trade at an 8pc discount to Nav, they appear to offer good value for money and scope for further capital gains over the long run. Of course, a gearing ratio of around 11pc means the trust's share price is likely to be relatively volatile, especially given the aforementioned elevated geopolitical risks. However, given Questor is highly optimistic about the stock market's long-term growth potential, leverage is likely to prove beneficial to overall returns in the coming years. A glance at the weightings of the trust's major holdings may also suggest relatively high share price volatility lies ahead. After all, its five largest positions account for 28pc of total assets, with its portfolio amounting to a relatively limited 45 holdings. However, given the FTSE 100's five largest members account for 31pc of its market capitalisation, this column is not overly concerned about the trust's concentration risk. Moreover, well-known FTSE 100 stocks that are fundamentally sound dominate its major holdings. They include AstraZeneca, Shell and National Grid, with the trust adopting a bottom-up approach that seeks to identify market mispricings when selecting stocks. Since being added to our income portfolio all the way back in December 2016, Schroder Income Growth has produced a capital gain of 18pc. Although this is four percentage points behind the FTSE 100's rise over the same period, which is undoubtedly disappointing, there is scope for index-beating performance as its current discount to Nav likely narrows, the benefits from sizeable gearing in a rising market become more apparent and its focus on fundamentally sound firms catalyses its performance. As well as offering capital return potential, the trust remains a worthwhile income purchase. Its relatively high yield, potential to deliver inflation-beating dividend growth and excellent track record of consistently rising shareholder payouts more than compensate investors for what could yet prove to be a highly volatile and uncertain second half of 2025. Questor says: buy Ticker: SCF Share price at close: £3.12
Telegraph
17-07-2025
- Business
- Telegraph
The healthcare sector is unloved – this trust is a prime example
Questor is The Telegraph's stock-picking column, helping you decode the markets and offering insights on where to invest. Questor believes the healthcare sector is looking unloved at the moment. Sven Borho, the co-manager of Worldwide Healthcare Trust, the largest investment trust focused on the sector, agrees. In fact, he thinks the sector has been out of favour for most of the past decade. Borho puts the blame for this squarely on the US debate around drug pricing, and while Questor agrees that it has had a big impact on sentiment, so too has the shift from the low inflation/low interest rate environment that prevailed before 2022. While there had been mutterings about drug prices for a long time, it was a tweet by Hillary Clinton in September 2015, who was then on the campaign trail, that sparked an upset in the sector. She was promising to tackle price-gouging in the speciality drug market, which set the ball rolling on a series of measures from both sides of the US political divide. Recently, this has culminated in President Trump's May 2025 executive order aimed at bringing US prices for patented drugs down to the levels charged in other countries. Last week's threat of a 200pc tariff on imports of drugs manufactured outside the US is another complicating factor. However, Borho feels that investors have tended to be overly negative in response to threats to control drug prices. He also observes that, historically, Republican presidents have been good for the sector. The Trump administration's choices for the heads of the various Federal healthcare bodies may have been controversial, but Borho's sense is that bodies such as the Food and Drug Administration (FDA) are becoming more efficient. In recent years, the trust's high exposure to biotech companies has weighed on its performance. As outlined in this column's recent appraisal of RTW Biotech Opportunities, the biotech sector suffers not only from political pressures but a low sentiment from an investor base currently wary of loss-making and unproven companies – unfortunately, the bread and butter of the biotech industry. Nevertheless, Borho is keen to stick with this approach as he believes that, over the long run, capturing the benefits of innovation is key to generating outsized returns. He points out that biotech companies were responsible for almost two thirds of all clinical trials that began last year and most – 85pc – of the novel products approved. At the same time, many big pharmaceutical companies face the prospect of lucrative products coming off patent and these companies need to acquire promising biotech businesses to maintain their revenue lines. Relative to its benchmark, Worldwide Healthcare is underweight big pharma, which was 40pc of the MSCI index at the end of June but 18pc of the trust's portfolio – it had a corresponding overweight exposure to biotech. However, there are also exciting developments in areas beyond biotech. Over Worldwide Healthcare's latest financial year, some of the strongest contributors to its returns were medical equipment companies, including Boston Scientific and Intuitive Surgical. Boston Scientific has been making great strides in the cardiovascular field, while Intuitive Surgical's da Vinci robotic surgery equipment is delivering better surgical outcomes for patients. Medical technology and devices accounted for a third of the trust's portfolio at the end of June. Worldwide Healthcare turned 30 in April, and was one the best-performing trusts over that period, offering a total return of about 4,000pc. However, over the past five years, the trust has lost money for shareholders. Unsurprisingly, that has put pressure on its share price discount to net asset value. The board says that it will buy back stock when the discount is wider than 6pc, but for most of the past 12 months the discount has been in double digits, which opened the door to activist Saba to build a 5pc stake in the trust. The board has stepped up the pace of share buybacks and both the discount and Saba's stake appear to be coming down now. Questor agrees with the manager that there is plenty to get excited about in the healthcare sector over the next few years. Borho foresees a time when most cancer is treated as a chronic disease and much is curable. He predicts advances in the area of neurodegenerative disease such as Alzheimer's and Parkinson's to help improve and extend lives and hopes new gene therapies will cure rare diseases. He also thinks that artificial intelligence will help guide diagnoses, relieving pressure on GPs. Other trusts with a similar remit have done a better job of navigating this difficult period for the sector, so the big question is whether Worldwide Healthcare is the best way to take advantage of this theme. While the jury is out, the successful history of the trust can't be ignored. Questor says: hold Ticker: WWH Share price: £3.07
