Tom Gilbey: London Shareholder Event 2026

Change to Portfolio Themes

 

I'm going to be talking about some of the ongoing thematic changes happening in the market and how we are thinking about them in the context of your portfolio. So starting with the reshaping of the consumer staples sector, which has around 11% of the Trust invested in it. This sector has faced a combination of challenges in recent years, including changing consumer behaviour, the growth of private label brands, weaker consumer demand, and the rise of social media advertising. These pressures have resulted in slower top-line growth and a significant reduction in valuations. This is resulting in companies becoming focused on their strongest brands and becoming more focused and simple organisations. We are calling this period, 'de-merging to re-emerge'. So how are we thinking about this in the context of your portfolio and the wider opportunities?

 

We own a large position in Haleon, which is a good example of a company de-merging to re-emerge. It was spun out of GSK a few years ago and is now a stand alone focused consumer health company. The company has sharpened its focus on growth, reset its culture and strengthened its management team. We believe this will result in stronger top line growth which when combined with a significant cost-saving opportunity will drive very attractive profit growth. Unilever, another holding in the portfolio, has successfully spun out the Magnum Ice Cream Company and recently announced the deal to combine its food business with McCormick, a US listed company. The remaining company will be focused on health and personal care. So why have we been trimming the position in Unilever? Whilst we think this is a sensible strategic decision by the company and will likely improve the quality of the business over the medium term, we think the separation will result in some operational disruption and the potential total returns is less attractive than other investment opportunities. One of these opportunities is BATs a recent addition to the portfolio. Its next generation products are growing faster than the rest of the group and are becoming more important for future growth. We believe the potential total return is very attractive, underpinned by strong profit growth, very strong crash generation, and an attractive dividend yield.

 

I'm now going to talk about two companies that we don't own, Reckitt and Diageo. Both companies have underperformed in recent periods, so our decision not to own them has contributed positively to performance. These companies are now undergoing a period of significant change, so they remain under close review. So starting with Diageo, a very well regarded CEO has recently been appointed and a sensible new strategy has been outlined. Diageo continues to own some of the leading brands in the global drinks industry. Despite this, we still think we're in the early innings of a turnaround and the balance sheet remain somewhat stretched. As such, we think it is too early to own the shares, but they could be very attractive in the medium term. Reckitt has sold a majority stake in its essential home division and its nutrition business is also now non-core. The plan is to create a high growth, more focused and more efficient organisation. The company remains under active review by the team. So to conclude, the consumer staples sector is undergoing a period of significant change. We believe the companies that we have discussed are taking the right strategic steps to focus and simplify their organisations. The opportunity is to identify the companies where these changes will translate into better growth and returns.

 

 

Data & Analytics

 

I'm going to talk to you about is the data analytics sector, which accounts for around 11% of your portfolio. These holdings have been headwind to recent performance due to growing concerns around how AI might disrupt their business model. We think about these holdings in three groups. The first group contains LSEG and RELX. Both businesses own large amounts of proprietary data, which are very difficult to replicate. They analyse this data and turn it into useful insights that their customers rely on. We believe both companies are well placed to benefit as AI develops, creating new ways to monetise their proprietary data. We are already seeing this through new AI-related revenue streams at RELX. The second group contains Sage. It is a trusted software business with sticky customer relationships, and it is using AI to improve its products, support pricing, and cut costs. Organic growth has already accelerated in recent periods, and we believe it will continue to remain strong going forward. In our view, this isn't reflected in the current valuation. The third group contains the classifieds businesses, Auto Trader, Rightmove, and Baltic Classifieds Group. The way that customers find and use these websites may change as AI develops. But we believe these are well established go-to platforms with strong brands, market-leading positions, and benefit from valuable network effects. So we think they will remain much more resilient than the market implies. Across all three groups, AI is creating uncertainty, putting pressure on share prices and valuations. For some companies, their valuations are around 50% lower than their medium-term averages. And we think the market has overreacted in some cases, creating some attractive opportunities. For some of these companies, the underlying quality of the business remains intact, while their growth prospects remain attractive, and in some instances have actually been enhanced by AI. So we therefore continue to remain invested in the theme, but we are aware of how quickly the AI environment is developing, so we continue to review our holdings closely. We've been concentrating our exposure in our highest conviction names. So for example, we sold the positions in Mony Group and Trainline and have been increasing our exposure in RELX and LSEG.

 

UK Housing & Construction

 

The UK housing and construction market, where we have been increasing in our exposure over the past year, and now have around 5% of the portfolio invested. The market backdrop remains very tough. Housing completions are 20% lower than recent levels, and UK cement production hits its lowest level since the 1950s. This weakness is being driven by both demand and supply. Higher mortgage rates and stretched affordability are weighing on demand, while planning delays, increased regulation and cost pressures are making it harder to build. Recent government announcements suggest that action is beginning to happen. On the supply side, by speeding up planning approval, improving local authority capacity and making more land viable for development. On the demand side, the government recently announced it's 'Your First Home' scheme. This is an iteration of Help to Buy and will hopefully provide a catalyst for demand. Andy Burnham has also promised the biggest council house building programme since the post-war period. Against that backdrop, the government's stretch target of 300,000 homes a year remains in place for now and as you can see, current completions are way below that level. Importantly, we don't believe that target needs to be hit in order for conditions to improve. If housing starts can recover towards 180,000, then we think the market will be in a much healthier position. The main risk is that volumes weaken further from here putting additional pressure on profits. Whilst we cannot rule that out, we are several years into a tough market, which some companies have described as tougher than the Financial Crisis, given its prolonged nature. With the first signs of government support now emerging, we believe we are closer to the end of the cycle than the beginning, even if the timing of a recovery remains uncertain. We believe current valuations reflect continued weak volumes and give little credit for a potential recovery. These businesses do not need to return to peak volumes in order to do well. At current valuations, we are adequately compensated for the risk of further market weakness with meaningful upside if volumes do recover. This has created some very attractive risk reward opportunities across the sector. So the first area where we have been increasing our exposure is the UK house builders where we have recently bought positions in Persimmon and Bellway. Both companies have been impacted by the weaker market, with volumes down around 20 to 30% and profits down almost 50%. Of the national house builders, Persimmon has the lowest average selling price and the largest exposure to the North and first-time buyers. So we think it is well-placed to benefit from the 'Your First Home' scheme. We are also paid a very attractive dividend whilst we wait for the market to recover. Bellway is a conservative, well-run business with an experienced management team and a focus on cash generation. And this cash is being returned to shareholders through dividends and buybacks. Both companies, we believe, are well placed to generate strong profit growth and attractive free cash flow if volumes recover. In the building materials space, we own Ibstock and Marshalls. Ibstok is the UK's largest Brick Manufacturer. Profits are down over 50% with brick demand near cyclical lows. But even a modest recovery in volumes will drive strong profit growth given the fixed costs in the business. And then finally, Marshalls, it's a little different to the other three names in that it also has a significant self-help opportunity. Within its landscaping division, profits have fallen from around £60 million to essentially zero. The new management team have cut costs, simplified the product range and are rebuilding customer relationships. So we think landscaping profits can grow if volumes simply stabilise, and if the wider market recovers the rest of the group will benefit. So in summary, the market remains very difficult, but we believe this is reflected in depressed earnings and valuations creating some attractive opportunities. These are established businesses earning below their normal levels of profitability. If volumes can recover, earnings and cashflow could improve meaningfully, creating significant potential upside to shareholders.