Buy, hold or sell: Lazard European Smaller Companies

Ed Rosenfeld, manager of Money Observer Rated Fund Lazard European Smaller Companies, talks about the UK stocks he's buying, holding and selling. UK-listed holdings account for more than a third of the fund's portfolio.


Lazard European Smaller Companies bought into international business-to-business media company Ascential at its initial public offering (IPO) in February 2016, at a flotation price of 200p.

Before the IPO, the firm - formerly known as both Emap and Top Right Group - was jointly owned by Guardian Media Group (GMG) and private equity group Apax. The pair put 35 per cent of the company up for sale in a fundraising that valued Ascential at £1 billion.

Apax now owns 38.9 per cent of the company and GMG 23.3 per cent. Rosenfeld says that because of such a limited free float, 'the offering went under the radar of many investors'.

The firm used the cash it raised to refinance its debts, and Rosenfeld believes that chief executive Duncan Painter has done a good job of streamlining the group - selling some subsidiaries and focusing the remaining ones on areas where the business is number one or two in the market.

lazard-european-smaller-companies-performanceIt runs a number of media festivals and conferences including Money 20/20 and the Cannes Lions International Festival of Creativity, an advertising and marketing event.

The festival business, Rosenfeld says, is a good one with a lot of resilience and visibility within the media industry.

'Given the defensiveness, the high quality and the very high margins of the business, that's something we've been attracted to,' he adds.


Despite the sector's recent Brexit-related woes, Rosenfeld has opted for a UK-listed property group as his 'hold'. He says that 'there is a common misperception that Savills is very highly geared towards a transactions-based business and its real estate agency business'.

'In reality,' he explains, 'they've diversified very much over the years and we don't think the market is appreciating the breadth and the diversity of the business.'

savills-versus-b-and-m-european-value-retail-share-price-performanceThe fund bought into Savills in spring 2015 at around 850p and has held it throughout its Brexit share price slump, which saw it fall as low as 548p at one point in early July.

It has since recovered to trade at around 750p currently. Rosenfeld believes, though, that the firm has the potential to re-rate and says it is very cheap versus its listed rivals.

'There's a lot of fee-based income so it may be more resilient than the market is giving it credit for. In addition to the estate agency business it has a facilities management business, a property services business, and a consultancy business; there's also commercial real estate as well as residential real estate.'

Furthermore, it has operations in the US, Asia and continental Europe, 'so we're at the point where the business is only approximately 50 per cent UK-focused and only 50 per cent transaction-focused'.


Lazard European Smaller Companies employs a low turnover strategy, with a concentrated portfolio of 80 stocks or fewer that it aims to 'enjoy for long periods'. 'We're certainly not operating a short-term strategy,' says Rosenfeld.

However, discount retailer B&M European Value Retail is the exception to that rule, having been bought by the fund in early 2016 and sold in June. B&M has a market capitalisation of around £2.5 billion in a 'growing category'.

'It is a strategy that we believe in and that has shown strength worldwide, from the dollar stores in America to Poundland in the UK, to the Lidls and Aldis of this world. We do think there's merit to this [approach].'

However, after a spring rally, the firm reached a share price of just over 300p and at this point Rosenfeld thought the company was fully valued. The fund sold out then, making 'approximately 25 per cent on the transaction'.

'They have about 500 stores currently and have aspirations of going to 850 stores,' the manager explains. '[But] the next couple of hundred stores are in closer proximity to the existing stores than they have been historically.

'Due to that, the timing of Easter and a couple of other one-off events, we thought the market would interpret the results negatively, which actually happened. At a certain point, the valuation and risk-reward balance were not deemed favourable.'

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