Finsbury Growth and Income manager Nick Train has described alcohol consumption during the coronavirus outbreak as a “fascinating development” with US sales now higher despite bars and restaurants being closed.
The Lindsell Train manager holds 10.4% in Diageo and 4.9% in Heineken in the Finsbury Growth and Income investment trust and has been encouraged by the drinking habits of people in lockdown, a research note from Edison said.
Alcohol consumption in the US has been stable or even marginally higher than normal during the coronavirus outbreak despite bars and restaurants being closed, according to research from Sanford Bernstein.
The Edison note said Train had been “disproportionately” adding to Heineken, which saw its share price fall by around a third on coronavirus volatility and remains 20% lower than its February high point of €104.95 a share.
Outside the portfolio’s top 10, he also holds premium French drinks brand Remy Cointreau, which represented a 3.2% weighting at September 2019, according to the investment trust’s last annual report.
Train has previously said he expects Remy to benefit from a “burst of hedonism” when the coronavirus comes to an end.
But the Finsbury Growth and Income portfolio still has exposure to a trio pub chains that have faced temporary closures in the face of the Covid-19 lockdown: Greene King, Fuller Smith & Turner, and Young and Co’s Brewery. Fuller Smith & Turner sold its brewing business to Japanese giant Asahi in January 2019 while retaining its physical pubs following in the footsteps of Young and Co’s, which made a similar move in 2011.
See also: Lindsell Train boosts stake in Hargreaves Lansdown amid virus volatility
Burberry’s could end up generating more value by cutting its dividend
The Edison note said Train had been unsurprised by how far stock markets had rallied from their global lows, suggesting one year of earnings and dividends was “irrelevant” compared to the long-term value of equities.
In H1 2020, the net asset value of Finsbury Growth and Income fell 18.7% while its share price fell 18.5%. Over the same period its benchmark fell 22%.
Train said government bond yields at 1% implied PE multiples of 100x and justified high valuations for companies that will survive the pandemic.
AG Barr, Burberry, Fullers and Youngs are among the portfolio holdings that have cut dividends, while Daily Mail & General Trust and Sage Group have modestly increased distributions.
Pointing to Burberry, Train said its dividend cut had saved it £120m and that its high return on capital “could end up generating more value by investing this cash to grow its brand”.
See also: Nick Train describes Covid-19 as most distressing period of four-decade career
