‘Optimism doesn’t wait on facts. It deals with prospects. Pessimism is a waste of time’ – Norman Cousins
Life is rarely boring in the financial markets and this certainly is not the case for the Dynamic Opportunities Fund portfolio.
Last week we undertook some changes to portfolio composition with the sale of our position in the sandwich and related convenience food producer Greencore for a profit. We invested during a time of strife for this business – as they bed down their US expansion – but the recent share price increase gave us an opportunity to realise our investment in a profitable manner and reinvest in other shares where we see greater potential over the next year. To this end, we added to our positions in Jardine Matheson (where shares in the diversified Asian conglomerate are currently trading below their book value), Anheuser-Busch InBev (we retain great hopes for the outlook for the world’s largest beer company) and in Imperial Brands (where we see good value in the currently out-of-favour tobacco sector).
In addition to the above changes, there have been a couple of deal related matters in important portfolio holdings – a recent trend following the pleasing bid for Whitbread’s key asset Costa Coffee from Coca-Cola in recent weeks. The first of these deals involved the fund’s largest gold producer holding Randgold Resources and an announcement of a nil-premia merger with Barrick Gold of Canada that creates a US$18bn gold sector behemoth which – to use the strapline the two entities are using on their presentation documents – is a ‘new champion for long-term value creation in the gold industry’.
Well the potential to achieve such lofty aims is apparent. Simply put, Randgold is the brains (higher returns, capability to develop mines others have struggled with) and Barrick Gold is the brawn (size, infrastructure). Putting together half of the top ten global gold mines into one entity – at the lowest average cost profile across peers and with the highest gold reserves – could really work, especially as Randgold’s CEO and CFO will be adopting similar positions in the new combined group. On the conference call, the Randgold CEO Mark Bristow noted that his own company was forged in the spirit of the ‘old Barrick’ and certainly recent years have seen the current Barrick executive team cut debt and focus their efforts more in the spirit of their heyday. What they have been missing is Randgold’s focus on developing only top tier assets. Certainly the sprinkling of the Randgold management and financial focus on assets beyond Africa in the Americas and Australia offers value-add potential (and sensible geographic diversification from a Randgold shareholder’s perspective). In short our instinct is to support the deal even if when this deal completes – in Q1 2019 – Randgold’s London listing will be cancelled (the new Barrick share will continue to trade in the US and Canada). It is true that most global dealing occurs in the America even for Randgold shares already, but it is a shame for London-only investors (not a problem for the globally-focused Dynamic Opportunities Fund naturally).
And finally…there is a bit of a ‘deal…no deal?’ situation at the French-listed food retailer Carrefour. Its big French rival Casino said that Carrefour have made a bid (which they have rejected) but Carrefour said it has not. My general observation on this is that there is no smoke without fire and it is good to see the new Carrefour management team thinking a bit more out of the box, and trying to create their own destiny rather than reacting to the threat of new food retail entrants such as Amazon. The corporate turnaround here seemingly continues apace both in financial results as well as mindset. We remain enthusiastic holders despite some recent solid gains.