August 20, 2014

Three shares that could soar following budget announcements

Yesterday’s budget announcement had an immediate impact on some of the largest FTSE 100 companies. In light of the announcements, Fidelity portfolio managers have selected three shares that could be positively impacted by the the Chancellor’s announcement:

Rank Group, held by Alex Wright, Portfolio Manager of Fidelity Special Situations and Fidelity Special Values.  Alex is also co-manager on Fidelity UK Smaller Companies.

Rank operates casinos, online gambling and, most pertinently, Bingo halls under the Mecca brand.  One of the announcements in the budget was that Bingo tax will decrease to 10%, to bring it in line with sports betting and online gambling.  This will help offset the structural decline we have seen in UK bingo halls over the last few years and will result in a meaningful pick in earnings.  The company demonstrated its improved outlook for the space by announcing plans for 3 new bingo halls shortly after Osbourne’s announcement.

Brewin Dolphin, also held by Alex Wright

The budget is also positive for wealth managers as it encourages saving and means pensioners will need more help managing their assets in retirement. We had been positive on the space as industry dynamics are improving thanks to consolidation and IFAs leaving the sector and regulation which pushed up fixed costs for the industry, giving a further advantage to larger wealth managers.  A key position is Brewin Dolphin which also benefits from internal change as a new management team focus on cutting costs and raising margins closer to those of peers.

Taylor Wimpey, held by James Griffin, Portfolio Manager of Fidelity MoneyBuilder Growth.

A few days before the budget, George Osborne announced that the equity loan scheme for new build homes (Help to Buy 1) will be extended until 2020 and increased the levels of Government funding from £3.5bn to £6bn and from 73,000 to 120,000 homes.  This announcement is a big positive for the UK house builders, as it materially reduces a key medium term concern for them, and takes away market fears that some of the government support may be withdrawn after elections.  My preferred stock in the sector is Taylor Wimpey. Although it has performed well over the last 12 months or so, it has lagged its peers and trades on an attractive valuation of 1.5 times book value. It has a sensible strategy focussed on margin improvement over volume growth and continues to take advantage of attractive prices to strengthen its strategic land bank.

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