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Marlborough snaps up Bayer and Roche after share price weakness

Marlborough snaps up Bayer and Roche after share price weakness

Marlborough European equity manager David Walton has capitalised on share price woes to buy both Bayer and Roche this year despite his prevailing focus on smaller stocks.

Marlborough – typically a small-cap-focused boutique – has just a 7.7 per cent allocation to large and mega caps in Mr Walton’s £46m European Multi-Cap fund but 46 per cent in micro stocks. However, the preference for smaller firms has not dissuaded him from exploring large-cap ideas.

“There are more opportunities to find low-valued growth companies in the small-cap sector, so we expect [most] of the fund’s holdings to come from this area,” Mr Walton said.

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“However, we also look for specific opportunities to buy large-cap companies where we believe growth prospects are not sufficiently valued by investors.”

As part of this approach, he has taken advantage of the share price weakness suffered by chemical company Bayer and healthcare firm Roche, adding both to the fund this year.

The former has been of interest to investors in recent months because of its corporate tussle with US seed firm Monsanto, which had been staving off Bayer’s acquisition attempts. The saga seemingly reached a conclusion last week when a deal was reached after four months of negotiations.

Bayer raised its offer several times before a $66bn (£50bn) deal was finally announced on September 14.

Mr Walton said his investment in both Bayer and Roche stemmed from a belief they were underpriced.

“We bought shares in Bayer earlier this year and topped up after the shares got knocked back on the concerns about overpaying for Monsanto,” Mr Walton said. 

“They were trading on 11 times earnings, which we thought was too low. In the case of Roche, the risk-reward looks more favourable currently, with the 2017 price-to-earnings ratio at 15 times, while the progression of molecules from their development pipeline to market is generally tracking company guidance despite more pessimistic views from analysts.”

In other moves, the manager used the stockmarket rout following the UK’s vote to leave the EU to top up on holdings, including consumer product firm Sarantis Group as well as Hartmann.

On the latter he noted: “Hartmann makes egg boxes. They are active in the UK but also in Europe, the US and Brazil, so for them Brexit isn’t the most important thing they are focusing on.”

Mr Walton also added to Ireland’s Dalata Hotel Group but warned its future looked uncertain. “It will be affected by Brexit,” he explained. “Its main market is Ireland. If the UK economy slows, it will also slow down. The company is also expanding into the UK. 

“But there are some positives from Brexit that people overlooked, such as the [weaker] pound bringing in tourists.”

Meanwhile the manager had weightings of more than 18 per cent each to Sweden and France at the end of July, with differing motivations.

“Sweden’s economy is performing well and we like domestically focused companies,” he explained.