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City wire brighton september 2013 final Presentation Transcript

  • 1. For Professional Investors Only. Not for Distribution to Retail Investors. UK Equity - Behind the Headlines and the Hype Ben Russon Fund Manager September 2013 Franklin UK Select Growth Fund Franklin Templeton Funds
  • 2. For Professional Investors Only. Not for Distribution to Retail Investors. FRANKLIN UK SELECT GROWTH FUND Franklin UK Select Growth Fund – June 2013 Onwards • Ben Russon, lead manager from June 2013 • 30-50 Stocks • Concentrated holdings of between 1.5% – 5% • Large-cap bias, high quality, long-term investments • Name change – Franklin UK Opportunities Fund from 30 September 2013 2
  • 3. For Professional Investors Only. Not for Distribution to Retail Investors. FRANKLIN UK SELECT GROWTH FUND Key Investment Themes – September 2013 • UK Housing ‘Recovery’ • US Housing & Construction • Traditional Roll-Out Models • Online Opportunities 3
  • 4. For Professional Investors Only. Not for Distribution to Retail Investors. FRANKLIN UK SELECT GROWTH FUND Investment Theme: UK Housing ‘Recovery’ 4 Source: Oriel Securities and Franklin Templeton Investments as at 30/06/13. -30 -20 -10 0 10 20 30 40 0 500 1,000 1,500 2,000 2,500 3,000 198619881990199219941996199820002002200420062008201020122014 Housing transactions (000,LHS) House prices (% yoy, RHS) Housing transactions and house prices • Government policy very committed: • Funding for Lending Scheme • Help to Buy • Planning environment • Far reaching implications: • Bank balance sheets • Construction employment • Consumer confidence • It gets you re-elected A ‘proper’ correction never happened Housing ticking up again House price/earnings ratio (x) 3.0 3.5 4.0 4.5 5.0 5.5 6.0 1984198619881990199219941996199820002002200420062008201020122014 House Price/Earnings Ratio Average
  • 5. For Professional Investors Only. Not for Distribution to Retail Investors. FRANKLIN UK SELECT GROWTH FUND 5 Pricing of 2-year fixed rate mortgages by LTV (%)1 Investment Theme: UK Housing ‘Recovery’ Borrowing has got cheaper over last 12 months… Source: Bloomberg and Franklin Templeton Investments as at 30/06/13. 1. Source: Regulated Mortgage Survey, CML. % -40 -35 -30 -25 -20 -15 -10 -5 0 01/06/2008 01/10/2008 01/02/2009 01/06/2009 01/10/2009 01/02/2010 01/06/2010 01/10/2010 01/02/2011 01/06/2011 01/10/2011 01/02/2012 01/06/2012 01/10/2012 01/02/2013 01/06/2013 Consumer confidence recovering UK Consumer Confidence Index • Mortgage availability increasing • Mortgage terms improving • Pent up demand • Ripple effect and feel-good factor • Variety of ways to gain exposure
  • 6. For Professional Investors Only. Not for Distribution to Retail Investors. FRANKLIN UK SELECT GROWTH FUND 6 • Greater downturn and more established recovery than UK • Different supply/demand balance versus UK • Many corporates well positioned to benefit • Challenged by recent moves in interest rates Investment Theme: US Housing & Construction 200 400 600 800 1000 1200 1400 1600 Jul-04 Jan-06 Jul-07 Jan-09 Jul-10 Jan-12 NewHomeSales(Thousands) New Home Sales (Thousands) Jun-13 Source: Franklin Templeton Investments and Bloomberg US Census Bureau as at 30/06/13. 1. Source: S&P Case-Shiller Composite 10 Home Price Index US recovery from a lower base and further advanced than UK US New home sales -30% -20% -10% 0% 10% 20% 30% 88 93 98 03 08 13 Sharp recovery in US house prices US home price appreciation. Year-over-year change 31 January 1988 - 30 April 20131
  • 7. For Professional Investors Only. Not for Distribution to Retail Investors. FRANKLIN UK SELECT GROWTH FUND 7 Investment Theme: US Housing & Construction • Construction equipment rental business • 3 drivers – cyclical, structural and market trends • High degree of operational leverage • Debate is centred upon the valuation 2010 2011 2012 2013e 2014e Sales (£m) 834 919 1121 1345 1552 EBIT (£m) 65.5 101 175 281 347 Margin (%) 7.9 11.0 15.6 20.9 22.4 Source: 1. Kaplan Associates/Management Estimates. 2. Bloomberg as at 29/08/13. This is an example of an investment purchased pursuant to investment advice of Franklin UK Select Growth Fund; the investment may or may not be currently held by Franklin Templeton Funds. This is not a complete analysis of every material fact regarding an industry, security or investment and should not be viewed as an investment recommendation. The actions taken with respect to this investment, and its performance, may not be representative of other advice or investments. Factual statements are taken from sources considered reliable, but have not been independently verified for completeness or accuracy by the fund’s manager or its affiliates. These opinions may not be relied upon as investment advice or an offer for a particular security or as an indication of trading intent for any Franklin Templeton fund. Past performance is not a guide to future performance. Ashtead Group earnings and estimates2 US and UK retail penetration (%)1 Stock Example: 25 45 50 60+ 0 15 30 45 60 75 2000 2011 2014E US Potential % 75 0 15 30 45 60 75 2012 % US UK
  • 8. For Professional Investors Only. Not for Distribution to Retail Investors. FRANKLIN UK SELECT GROWTH FUND 8 Investment Theme: Traditional Roll-Out Models • Self-funded expansion of successful concepts • Leading and developing the markets in which it operates • Benefitting from structural and market opportunities Premier Inn UK structural growth opportunity Independent sector in structural decline 2008 2010 2012 Rooms* 40,251 43,374 51,671 Share (%) 5.8% 6.4% 7.6% Share of rooms has increased 60% 57% 54% 23% 24% 25% 17% 19% 21% 2008 2010 2012 Independents Other Branded Budget Branded Total UK hotel market 686,000 rooms 679,000 rooms 682,000 rooms CAGR +5.1% +2.3% -2.8% 42% 30% 12% 6% 5% 3%2% Premier Inn Travelodge Holiday Inn Ibis Jurys Inn Days Inn Ramada Encore Source: Whitbread as of 03/07/13. 1. Companies, Exane BNP Paribas estimates. This is an example of an investment purchased pursuant to investment advice of Franklin UK Select Growth Fund; the investment may or may not be currently held by Franklin Templeton Funds. This is not a complete analysis of every material fact regarding an industry, security or investment and should not be viewed as an investment recommendation. The actions taken with respect to this investment, and its performance, may not be representative of other advice or investments. Factual statements are taken from sources considered reliable, but have not been independently verified for completeness or accuracy by the fund’s manager or its affiliates. These opinions may not be relied upon as investment advice or an offer for a particular security or as an indication of trading intent for any Franklin Templeton fund. Past performance is not a guide to future performance. Budget hotel marketshare1 Stock Example:
  • 9. For Professional Investors Only. Not for Distribution to Retail Investors. FRANKLIN UK SELECT GROWTH FUND 9 Investment Theme: Traditional Roll-Out Models • Plenty of potential domestic capacity • Backing the management to execute • It works with coffee too… Other interesting roll outs models: Half of the growth opportunity comes from London Premier Inn rooms in London 2,415 2,911 3,500 3,177 5,179 8,2502,474 2,848 5,750 1,100 2,500 2012/2013 Total including committed pipeline 2018 milestone* Hub by Premier Inn Central London Greater London excl. Central London 12,038 c. 20,000 650 1,005 1,300 c. 2,000 0 500 1000 1500 2000 2500 2010/2011 2012/2013 2015/2016 2017/2018 SystemSales(£m) 8,066 6.0% 9.0% 13.0% Premier Inn share Costa Coffee doubling system sales by 2018 20% 22% c.33% International System Sales Share Source: Whitbread as of 03/07/13, Preliminary Results Presentation 2012/2013. This is an example of an investment purchased pursuant to investment advice of Franklin UK Select Growth Fund; the investment may or may not be currently held by Franklin Templeton Funds. This is not a complete analysis of every material fact regarding an industry, security or investment and should not be viewed as an investment recommendation. The actions taken with respect to this investment, and its performance, may not be representative of other advice or investments. Factual statements are taken from sources considered reliable, but have not been independently verified for completeness or accuracy by the fund’s manager or its affiliates. These opinions may not be relied upon as investment advice or an offer for a particular security or as an indication of trading intent for any Franklin Templeton fund. Past performance is not a guide to future performance. Stock Example:
  • 10. For Professional Investors Only. Not for Distribution to Retail Investors. FRANKLIN UK SELECT GROWTH FUND 10 Investment Theme: Online Opportunities • Publisher and information provider operating in the science, medical, legal, risk and business sectors • Managing the transition from print to digital • Diversified across geographies and business sectors Online-derived revenues growing in importance1 Reed Business Information: electronic revenue in proportion to total revenue Division Digital Revenues Scientific, Technical & Medical 73% Risk Solutions 95% Business Information 59% Legal 79% Source: 1. Reed Elsevier Annual Report and Accounts 2012. 2. Reed Elsevier Interim Results 30 June 2013. This is an example of an investment purchased pursuant to investment advice of Franklin UK Select Growth Fund; the investment may or may not be currently held by Franklin Templeton Funds. This is not a complete analysis of every material fact regarding an industry, security or investment and should not be viewed as an investment recommendation. The actions taken with respect to this investment, and its performance, may not be representative of other advice or investments. Factual statements are taken from sources considered reliable, but have not been independently verified for completeness or accuracy by the fund’s manager or its affiliates. These opinions may not be relied upon as investment advice or an offer for a particular security or as an indication of trading intent for any Franklin Templeton fund. Past performance is not a guide to future performance. 38% 46% 51% 54% 0% 10% 20% 30% 40% 50% 60% 2009 2010 2011 2012 Electronic Revenue Reed Divisions: % digital revenue2 Stock Example:
  • 11. For Professional Investors Only. Not for Distribution to Retail Investors. FRANKLIN UK SELECT GROWTH FUND 11 Investment Theme: Online Opportunities Other examples:2011a 2012a 2013e 2014e 2015e Sales (£m) 6002 6116 6215 6341 6528 EBIT (£m) 1267 1384 1450 1526 1603 Margin (%) 21.1 22.6 23.3 24.1 24.6 • Strong balance sheet • Structural growth opportunities that benefit margins • Strong dividend growth and attractive valuation Online-derived revenues growing in importance Reed Business Information: electronic revenue in proportion to total revenue +4% Electronic Face to Face Print SubscriptionTransactional Advertising -5-7% +7% +5-6% -5-7% +2-3% Source: Reed Elsevier Interim Results 30 June 2013, Nomura Equity Research 26/07/13. This is an example of an investment purchased pursuant to investment advice of Franklin UK Select Growth Fund; the investment may or may not be currently held by Franklin Templeton Funds. This is not a complete analysis of every material fact regarding an industry, security or investment and should not be viewed as an investment recommendation. The actions taken with respect to this investment, and its performance, may not be representative of other advice or investments. Factual statements are taken from sources considered reliable, but have not been independently verified for completeness or accuracy by the fund’s manager or its affiliates. These opinions may not be relied upon as investment advice or an offer for a particular security or as an indication of trading intent for any Franklin Templeton fund. Past performance is not a guide to future performance. Format Type Stock Example:
  • 12. For Professional Investors Only. Not for Distribution to Retail Investors. Appendix
  • 13. For Professional Investors Only. Not for Distribution to Retail Investors. FRANKLIN UK SELECT GROWTH FUND 13 Investment Process Business Risk Balance Sheet Risk Management Risk Valuation Risk A broad top-down perspective on the outlook for economies and financial markets provides the framework for our bottom-up stock picking selection process A fundamental research approach focussed on high quality companies
  • 14. For Professional Investors Only. Not for Distribution to Retail Investors. FRANKLIN UK SELECT GROWTH FUND Portfolio Overview • Tobacco • Pharmaceuticals • Utilities Stable Core • Travel & Leisure • Software • Media Structural Growth • Support Services • Financial Services Special Situations 14 References to particular industries, sectors or companies are for general information and are not necessarily indicative of a fund’s holding at any one time.
  • 15. For Professional Investors Only. Not for Distribution to Retail Investors. FRANKLIN UK SELECT GROWTH FUND The Case for an Unconstrained Approach 0 100 200 300 400 500 600 Jan-85 Jan-86 Jan-87 Jan-88 Jan-89 Jan-90 Jan-91 Jan-92 Jan-93 Jan-94 Jan-95 Jan-96 Jan-97 Jan-98 Jan-99 From the 'great moderation' ... 40 50 60 70 80 90 100 110 Jan-00 Jan-01 Jan-02 Jan-03 Jan-04 Jan-05 Jan-06 Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13 ... to a more volatile world Source: Franklin Templeton Investments as at 20/05/13. 15 • Adopt unconstrained, flexible approach • Importance of compounding income for total returns • Focus on downside risk • Look beyond short-term sentiment
  • 16. For Professional Investors Only. Not for Distribution to Retail Investors. FRANKLIN UK SELECT GROWTH FUND Franklin UK Select Growth Fund Fund Details Management Ben Russon, Mark Hall, Colin Morton Asset Category UK Equity Investment Style Blend IMA sector IMA UK All Companies Benchmark FTSE All Share Index Launch Date 17/10/2011 Number of Positions 42 Portfolio Size £103.3 million 16 Source: Franklin Templeton Investments, as at 31/07/13. The Franklin UK Smaller Companies Fund launched on 17 October 2011 to receive the assets of Rensburg UK Smaller Companies Trust, a unit trust. All fund performance data is based on the mid price of the Rensburg UK Smaller Companies Trust from its launch on 01/07/1991 to 30/09/2011 and the net asset value of the Franklin UK Smaller Companies Fund A(inc) shares thereafter. Holdings of the same issuer have been combined. ISIN SEDOL Bloomberg A(inc) GB00B45MQD36 B45MQD3 BWDAGGI LN W(acc) GB00B76GK996 B76GK99 FUKSGWA LN Z(acc) GB00B7F47W60 B7F47W6 FUKSGZA LN
  • 17. For Professional Investors Only. Not for Distribution to Retail Investors. FRANKLIN UK SELECT GROWTH FUND 17 Market Cap Breakdown 16 April 2013 19 August 2013 FTSE 100 66.7% 78.3% FTSE 250 30.9% 19.4% Other 0.6% 2.2% Cash 0.9% 0.7% No. of stocks 66 42 Source: Franklin Templeton Investments as at 19/08/13.
  • 18. For Professional Investors Only. Not for Distribution to Retail Investors. FRANKLIN UK SELECT GROWTH FUND • UK equity specialists based in Leeds • Acquired by Franklin Templeton Investments in January 2011 18 About Franklin UK Equity Team Source: Franklin Templeton Investments as at 30/06/13. The Franklin UK Equity Team was previously part of Rensburg Fund Management Limited. The company changed its name to Franklin Templeton Fund Management Limited on 17/10/11. • Strong and stable team – Average investment experience: over 20 years – Cover the entire market with specific areas of expertise • Ben Russon joined in April 2013
  • 19. For Professional Investors Only. Not for Distribution to Retail Investors. FRANKLIN UK SELECT GROWTH FUND Important Information For professional investor use only, this document is not aimed at, nor intended for use by retail investors. Copyright © 2013 Franklin Templeton Investments. All rights reserved. This document is intended to be of general interest only and does not constitute legal or tax advice nor is it an offer for shares or invitation to apply for shares of the UK-domiciled OEIC, Franklin Templeton Funds OEIC (“the Fund”). Nothing in this document should be construed as investment advice. The Franklin UK Select Growth Fund launched on the 17th October 2011 to receive the assets of the Rensburg UK Select Growth Trust, a unit trust. Subscriptions to shares of the Fund can only be made on the basis of the current prospectus, the relevant Key Investor Information Document, accompanied by the latest available audited annual report and the latest semi-annual report if published thereafter, which can be found on our website or requested from the address below. The value of shares in the Fund and income received from it can go down as well as up, and investors may not get back the full amount invested. Currency fluctuations may affect the value of overseas investment. An investment in the Fund entails risks which are described in the Fund’s prospectus and in the relevant Key Investor Information Document. The Fund invests in a specific sector or geographical area and the returns may be more volatile than a more diversified fund. No shares of the Fund may be directly or indirectly offered or sold to nationals or residents of the United States of America. Shares of the Fund are not available for distribution in all jurisdictions and prospective investors should confirm availability with their local Franklin Templeton Investments representative before making any plans to invest. Opinions expressed are the author's at publication date and they are subject to change without prior notice. References to indices are made for comparative purposes only and are provided to represent the investment environment existing during the time periods shown. An index is unmanaged and one cannot invest directly in an index. The performance of the index does not include the deduction of expenses and does not represent the performance of any Franklin Templeton Group fund. Any research and analysis contained in this document has been procured by Franklin Templeton Investments for its own purposes and is provided to you only incidentally. For a free copy of the latest prospectus, and the relevant Key Investor Information Document , the annual report and semi-annual report, if published thereafter or for more information about any Franklin Templeton Investments’ fund, please contact: Franklin Templeton Investments, Telephone: 0800 305 306, Email: enquiries@franklintempleton.co.uk or write to us at the address below. Issued by Franklin Templeton Investment Management Limited (FTIML) Registered office: The Adelphi, 1-11 John Adam Street, London WC2N 6HT. FTIML is authorised and regulated by the Financial Conduct Authority. 19