BROKERS’ NOTES: Buy MAS PLC, sell Walmart

Peter Armitage, CEO of Anchor Capital

Buy: MAS PLC

MAS PLC is back in the spotlight, but not for great reasons. It has a solid underlying Romanian property business; recent results showed strong revenue and profit growth. The problem lies in the corporate structure, where cash and value are trapped in a 40%-owned associate. MAS has been in negotiations with the controlling shareholder and, at the time of the results, it also proposed buying out the other 60% — which would have simplified the structure and resulted in the resumption of dividends. However, the market did not like the deal, considering it too expensive. What makes it worse is that the controlling shareholder of the associate has an effective 30% of MAS itself. So it might well be back to the drawing board. The NAV is more than double the share price, so if they resolve the impasse there is huge upside.

Sell: Walmart

The US stock market has been volatile this year, and the S&P 500 has fallen more than 10% from its February high. Walmart has fallen by more than 15%, but we still think the price is too high. As the US bull market travelled upwards over the past two years, many fairly low-growth shares shared in this upward trend. Walmart is a great business, but the future growth rate is pedestrian and there is no particular reason the earnings multiple should have doubled from 18 to 36 over the past few years. There was some excitement about e-commerce potential, but nothing will get rid of its huge and costly store base. There was good reason for tech and AI shares to rise to big valuations, given their inherent optionality, but the old stalwarts are only worth a certain amount. Walmart is still at an earnings multiple of well over 30, and as market sanity returns we expect the valuation to return to a more logical band.