Global small cap stock picks for 2019

Virginia Au, Vice President and Portfolio Manager of the 4-Star, Bronze-rated Invesco Global Small Cap Fund shares where she's finding value

Ruth Saldanha 19 March, 2019 | 5:00PM

 

 

Ruth Saldanha: After the fall in the last quarter of 2018, the markets have rallied in 2019. So, now, where should you find in value in the global small-cap space? Virginia Au, Vice President and Portfolio Manager of the 4-Star, Bronze-rated Invesco Global Small Cap Fund is here today to share her picks.

Virginia, thank you so much for being here today.

Virginia Au: Thank you. I'm delighted to be here.

Saldanha: Would you be able to share some ideas that you like especially that investors should hold for the very long term?

Au: Certainly. The first thing I like is Equiniti Group. They are the largest share registry and employee share plan in the U.K. As you can imagine, for a large corporate publicly-traded company keeping track of shareholder information for voting and for dividend payments is not an easy task. So, barriers to entry is very high because you need a robust software system and also to comply with high regulatory. So, for them, another benefit is that they have – it's a sticky business. They have very high recurring revenue. So, we expect the company to grow 10% to 12% in earnings and they are only trading at 10 times this year's earnings. That's a very attractive opportunity.

Second name I like is Inter Cars. They are basically the O'Reilly Automotive of Poland and Eastern Europe. What they do is they distribute after-market car parts for repair shops and garages. The key in this business is product availability and speed of delivery. So, because professional mechanics care most about turning over their service bay, so they want to repair as many cars as possible each day and Inter Cars is the number one player in their market, seven times bigger than the number two player. It is still a very fragmented industry. So, they still have a great long-term opportunity to gain market share and to participate in the market growth. In fact, when you look back, in the last 10 years, the company have grown their earnings 26% per year. And the company is currently trading at 11 times this year's earnings, so very attractive.

Lastly, the company I like is Encore Capital. It's based in U.S. They are one of the largest credit card debt collectors in the U.S. and Europe. These credit card debts are basically debts that the banks have already written off and are selling it for pennies on a dollar. So, because of what happened since the Financial Crisis the competitive landscape has shrunk a lot because of very high regulatory hurdles. So, Encore Capital is the number one player in the U.S. and many of the other European countries. For them we also see a big tailwind from having higher credit card balances and high delinquency. And so, we expect the company to grow 15% in the next few years and it's trading at six times this year's earnings.

So, as you can see, even with three examples, why I'm very excited about the fund with higher growth opportunities and lower valuation than the market and I think these two attributes are key that investors need to focus on when they look for the next investments.

Saldanha: Thank you so much for joining us today, Virginia.

Au: Thank you, Ruth.

Saldanha: For Morningstar, I'm Ruth Saldanha.

Securities Mentioned in Article

Security NamePriceChange (%)Morningstar Rating
Encore Capital Group Inc36.37 USD0.00
Equiniti Group PLC ADR0.00 USD0.00
Inter Cars SA230.00 PLN0.00

About Author

Ruth Saldanha  Ruth Saldanha is Senior Editor at Morningstar.ca