First half like-for-like sales fell in Marks & Spencer’s (MKS) Clothing & Home and Food divisions, yet the out of favour retailer remains ‘fixable’ and its major overhaul can succeed.

So says savvy contrarian Alasdair McKinnon, the manager of The Scottish Investment Trust (SCIN), winner of the coveted Best Investment Trust gong at the 2018 Shares Awards.

‘We think there’s something fixable there,’ the steely-nerved McKinnon informs Shares. He is keeping the faith with chairman Archie Norman and veteran retailer Steve Rowe, CEO, who’ve replaced the entire top team at Marks & Spencer and are reshaping their embattled charge, cutting costs, shedding excess stores, revitalising product lines and improving pricing strategy and IT infrastructure alike.

‘Marks & Spencer has very strong cash flow and a good dividend yield and personally, I still think it has a great brand,’ explains McKinnon.

DIVIDEND HERO

Trading at a 9.5% discount to net asset value (NAV), the independently managed trust invests globally to provide above average returns and a UK inflation-beating dividend growth. An AIC ‘dividend hero’, having increased the dividend for 34 consecutive years, The Scottish is also a quarterly dividend payer.

McKinnon seeks undervalued, unfashionable companies such as M&S that are ripe for improvement; portfolio picks fall within three categories – ‘ugly ducklings’ such as Marks & Spencer, ‘change is afoot’ stories and ‘more to come’ ideas.

CONTRARIAN CALLS

Current contrarian calls include US department store chain Macy’s, another 'ugly duckling' which has also been cutting costs and store space.

Macy’s faces stiff discount competition across the pond, yet McKinnon believes it could benefit as US consumer spending power increases and shoppers return to department stores. Unlike the fallen Sears, Macy’s ‘hasn’t got too much debt, has been in control of its own destiny and is the sixth largest e-commerce player in the US.'

The Scottish currently likes gold as ‘an inflation hedge and a market wobble hedge’. The trust has exposure to gold through Colorado-based Newmont Mining and Australia’s Newcrest Mining and McKinnon sees scope for further consolidation in light of the Randgold Resources (RRS)/Barrick Gold mega-merger.

He also sees opportunities in European banks, holding BNP Paribas, ING and Standard Chartered (STAN), the latter led by highly motivated Bill Winters. The one time co-CEO of JP Morgan has improved the financial performance and returned the bank to the dividend list.

Seeking to avoid ‘the madness of crowds’, McKinnon thinks there is ‘more steam to come out of the FAANG names’ and doesn’t see Facebook, Amazon, Netflix and Google as interesting, even after the deflation of the tech bubble.


Issue Date: 04 Dec 2018