Marriage chats about his favorite stocks, recent disposals and engaging with companies that don’t have an IRO
Most of the companies Paul Marriage invests in don’t have IR teams. A specialist in smaller UK companies, Marriage looks after assets of £1.1 bn ($1.8 bn) for Schroders, which acquired Marriage’s previous firm Cazenove Capital Management earlier this year.
What are the strengths and weaknesses of speaking to companies that have no IR teams?
‘Below a £500 mn market capitalization, companies shouldn’t have an IR team. We like speaking to the managerial guys with the offices above the shop floor. We take quite big stakes, up to 30 percent of a company’s share capital across our different funds, so I meet chief executives and chief financial officers. More than two thirds of our companies don’t need IR teams.’
Which facts made you buy and hold as a long position British Polythene Industries (BPI), the leading specialist polythene manufacturer?
‘It’s been fantastic. It was woefully oversold when people worried about their pension funds. We bought in mid-2009 at about £1.50 when there was uncertainty generally about small caps. BPI is now moving into more specialist work such as recyclable sacks and agricultural recycling, and it trades on 9.5 times earnings. It’s been a great debt-reduction story, because it was at about 50:50 debt to equity, but the debt’s halved, the equity’s been rerated and you’ve made three or four times your money.
‘It increased the final dividend by 5.6 percent in 2012 compared with 2011. The chairman has told investors the board expected BPI to continue to generate cash from operations, so it cancelled £20 mn of its previous banking facilities.’
Why did you invest in and retain Topps Tiles, the UK’s biggest tile specialist?
‘It’s been a very tough market for DIY, but the company has battened down the hatches and is well placed for any recovery in the housing market. It looks likely to emulate the Howdens Joinery success in the kitchen market.’
Are there any sectors you don’t like?
‘Oil & gas is one I have avoided since I started after leaving Oxford [where he studied modern history at University College]. In addition, we don’t invest in loss-making businesses, because they need more equity to get to profit.’
Have you made any disposals recently? If so, why?
‘We sold Elementis, the specialty chemicals company, after its share price increased from 20p to £2.40. It’s been one of our big success stories, along with Booker, a British food wholesaler that serves 1.5 mn customers and has a business in India.’
What’s your average holding period?
‘It’s 18 months but among our 10 biggest holdings, some – including John Menzies, the support services company – are much longer. We are long-term investors. For every five stocks, the top three make the long-term returns.’
What’s your market cap cut off?
‘It’s approximately £1.5 bn.’
How should companies with high cash balances decide between dividends, reinvestment in the business, and acquisitions?
‘If you, as the company, have too much cash, you should pay a special dividend – so if 10 percent of the market cap is in cash, there should be a special dividend. If you are a technology company and perhaps perceived as a bit risky, then having some cash shows you are here to stay. But if you are a BPI, and a more stable business, you should throw out cash.
‘A buyback is a bit pointless because you lose liquidity. Big companies can buy back their shares without losing liquidity, but small companies can’t. In the smaller companies sector, there is now a trend toward the ‘Goldilocks balance sheet’: not too much cash, not too much debt. Another trend I have witnessed is that companies are managed for shareholders more, not for the management. Good investor relations helps that.’
How often do you visit companies?
‘About once every 18 months.’
