Thesis: Three undervalued stocks we like to produce a turnaround
Ryan Paterson, research analyst at Thesis Asset Management, has highlighted three UK companies that Thesis currently favours, which he believes the market is currently undervaluing.
According to Paterson, the stocks, Inmarsat, Micro Focus and Playtech, are primed to become good quality growth stocks over the long term, and are held within some of the Thesis model portfolios.
“The successful launch of Inmarsat’s S-band satellite for the European Aviation Network (EAN), providing Wi-Fi for airline passengers, should have been a positive catalyst, but it was somewhat overshadowed by rival satellite operators who are critical of the offering.
“However, the S-band satellite underlines the momentum that Inmarsat is building in the high-speed inflight connectivity market. It has over 1,200 aircraft installations expected under signed contracts with a number of leading airlines worldwide including International Airlines Group, Air New Zealand and Singapore Airlines.
“We think Inmarsat’s credentials as a growth stock are beginning to shine through and its global, mobile and agile heritage is a key differentiator in an industry with massive latent demand.”
“Micro Focus has seen a weak share price since the initial positive reaction to the announced mega merger between the technology firm and HPE Software. We believe this is down to the fact that HPE’s performance has underwhelmed recently with poor licence sales spooking the market.
“Investors are slightly dubious and may be a little bearish on the outlook at this stage.
A lacklustre reception to the deal from the HPE sales force and its customers is not surprising, and cynics might suggest that the new management team may even turn a blind eye to the resulting lower numbers, as they will make it a little easier for the team to exceed these performance metrics next year.
“However, we still believe the deal makes strategic sense with minimal product overlap and will give Micro Focus the broadest portfolio of infrastructure solutions in the industry. It will continue to do what it does best, drive operational efficiencies and relentlessly focus on delivering sustainably high free cash flows.”
“Online gambling software provider Playtech fell on the back of a further disposal by Brickington Trading, which sold 36.5million shares at a 7% discount. Brickington is a wholly-owned subsidiary of a trust of which Playtech’s founder, Teddy Sagi, is the ultimate beneficiary. As we understand it the placing was undertaken to further diversify the investment portfolio of Sagi and his family and to help finance a significantly increased focus on real estate.
“We continue to believe the dilution of Sagi’s stake should be taken well by the market and by those investors who had corporate governance issues with the current relationship. There are numerous reasons to justify our confidence in Playtech, but it really boils down to the fact we like to invest in companies that are market leaders and have outstanding track records. Its rapid growth, increased scale and long term contracts, we think has enabled the development of a superior platform, more relevant software and more products than other suppliers.”