“I started in the City in 2001, working in sales for Credit Suisse in the European equities team,” Godber says. “I left there and founded Matterley in August 2008, which wasn’t ideal timing given Lehman Brothers crashed six weeks later. Nevertheless, we got our heads down and got on with the job.”
It was not easy though and despite good performance the fund struggled to bring in enough money. “It was a difficult environment in which to raise assets, and Matterley was consumed by Charles Stanley in 2009.”
Godber’s future was not to be with Charles Stanley, however, and in September 2012 he resigned to join Miton and set up the UK Value Opportunities Fund he manages today.
“I knew people at Miton such as the chairman who had been involved in founding Matterley. Miton was going through a lot of change around that time, with Gervais Williams joining as well as a number of others including me.”
Value investing is something Godber believes comes naturally to him, and he does not expect that to change with time. “I’ve always been a value-focused investor; it’s either something you really believe in or you don’t. It is not something that morphs over time,” he says.
As an investment category, Godber sees unique advantages to value.
“Value is a very underserved part of the UK industry. I believe only about 7% of active funds are value-focused. It is very complementary to portfolios because the stocks that make up the funds tend to look a lot different to other UK equity funds, and the risk profiles are different, too.”
Strategy and style
There are a number of key strands to Godber’s approach to fund management. First, there is teamwork. Godber is aided by co-manager Georgina Hamilton, who is a long-time colleague stretching back to his days at Matterley.
“We developed the fund’s investment process together and I think having a team-based approach is important,” Godber says.
Having ‘UK’ in a fund name clearly limits the playing field, but Godber believes that in real terms it offers no restriction due to the wealth of value opportunities among UK companies. “There is plenty of opportunity in the UK at the moment, so we don’t feel the need to look further afield,” he says. “We invest across the market-cap spectrum from FTSE 100 to AIM, so we have more than enough to be getting on with.”
Another element of Godber’s approach is meeting companies in person. Being UK-focused makes this considerably easier than is the case for funds that invest in far-flung parts of the world. “Meeting company management is very important.
It is also good to visit companies onsite and meet operational staff below board level as well. Turning around a business is often much more than a senior management issue.”
In terms of stock selection, Godber remains true to a few core principles.
“We are only really interested in asking what is the value of a company today and whether that gives us what we call a ‘margin of safety’.”
Godber’s margin of safety requirement revolves around cashflow. “In all instances we have a safety check before buying,” he says.
“The last thing you should do as a value investor is buy companies because you can get a pound’s worth for 50p, only for them to go bust.
We look at the cashflow after evthere ery single call on the business, such as dividend payment, capex and pension obligations.
“For us to invest, the company needs to still be cash-positive after all that. Going through this check lets you avoid some of the landmines that can be out there for value investors.
This part of our process is what is behind our strong performance during down times in the markets,” he says.
Godber also swears by remaining completely neutral on whether a company makes interesting products or not. “We are not averse to investing in truly boring businesses. Value investing does not have to be sexy, we are only interested in whether something is cheap enough. We are not looking for exciting companies that are going to take on Apple.
“There are two main types of company we invest in: one is trading below the value of its tangible asset base, with things such as goodwill stripped out; the second is what we call a cheap value creator, which is a company that has a return on capital undervalued by the market.”
Expectation is an increasingly important part of Godber’s process.
“A key thing for us is finding businesses that consistently meet or beat expectations,” he says. “The market reacts viscously to any kind of underperformance, profit warning or other bad news.”
Ongoing themes
While value investing is a bottom-up discipline by definition, Godber tries to tap into wider themes in his stock selection.
“One ongoing theme is beneficiaries of the oil price fall. I don’t think the market has fully priced in the benefits to some companies. RPC is one of our biggest holdings.
It’s a plastics business so it is seeing a big drop in its input costs as a result of the oil price.
“The oil price fall is also really important for consumer discretionary, particularly for companies that sell in the US. It has a much bigger impact there because the tax on petrol is much lower.”
House improvement is another strong theme Godber is trying to tap into. “Kitchens, bathrooms, floors and such. The sector has had a relatively bad recovery from the crisis so far, but this means there is a lot of room for improvement. “In 2007, the average spend on home improvement per house was £1,200 per year; now it is only £600,” Godber says.
“The rebound in kitchens and bathrooms so far has been in new-build housing, but I think we will see that improving at the consumer level An example here would be Howdens, which is very well run. Owner of Johnson Tiles, Norcros, is another, which is the biggest manufacturer in the UK.
“Car retailers are also something we are targeting. I think it is a fascinating industry at the moment because there is a real change in the dynamics under way,” he says. “There is a huge ongoing change in terms of how consumers are approaching car buying. Just three or four years ago there was a large proportion, about 20-30%, of cars bought under PCP plans. That number has now risen as high as 70%,” Godber says.
“Because the customer can give the car back at the end of the term, PCP plans require customers to sign up to servicing agreements that companies like Lookers and Vertu offer. “There is still some way to go as the sector only trades at 10-times earning, while retail in general trades at 16 times.”
Godber is confident of the UK’s economic prospects in general, although there is one cloud on the horizon. “The data looks good for the UK economy as real wage growth is coming through. We think wage growth will beat most expectations and the consumer sector will benefit substantially,” he says.
“The danger is around the general election. It is far too close to call right now and the really negative scenario is that we have to have a second election with the extended hiatus and uncertainty that creates at many levels – not just among consumers but corporate spending plans and inward investment in UK companies.”
Even if this comes to pass and the country is in limbo from May, Godber will most likely ride out the hard times as he had to once before.
