How a Schroders fund manager doubled returns on a ‘rubbish’ stock in 3 months
No stock is off the table for Simon Adler, a value investor at Schroders. “We are happy to buy the worst business you have ever conceived, provided it is cheap enough,” Adler told the Value Investor conference of fund managers in London on Wednesday. Adler co-manages the Global Recovery, Global Income and Global Sustainable Value strategies at the British asset manager. He said he can back up his claim. “We can prove that because we have bought the worst business anyone can conceive,” Adler added, before describing Italian oilfield services company Saipem as a “truly rubbish” stock in 2022. Yet, Adler’s fund bought shares in Saipem around September of that year and doubled returns in about three months, the fund manager said. Earlier in 2022, Saipem had failed to raise capital through an auction to public market investors, and the stock tumbled from around 2.70 euros by about 70% in the weeks after. SPM-IT 5Y line That meant Saipem’s investment banks, which included BNP Paribas , Citi , Deutsche Bank , HSBC , Intesa Sanpaolo and UniCredit , who had underwritten the new equity, were forced to buy them. Adler’s team approached the investment banks and offered them 50 cents per share. However, the banks refused to sell at that price. Adler persisted. “Eventually, I think, on the fourth or fifth time of asking them, they sold us a big wedge,” he said, by which time the stock had tumbled to 60 cents a share, a bottom. Saipem shares then rallied by more than 100% by the start of the following year. “We got it at such an incredibly low price that we were able to double our clients’ money [in] the next three months,” the Schroders fund manager added. At the time, Saipem, alongside other companies in the oilfield services sector, was recovering from the ultra-low oil prices during the pandemic that had pushed many in the sector deep into the red. The company’s stock, since the start of 2023 and around the time Adler sold the shares, had rallied by a further 80% due to improving confidence among investors over the company’s financial performance. For instance, late last month, the company reported revenues of 3.52 billion euros for the first quarter, which beat expectations of 3.47 billion euros. Similarly, the company’s adjusted profits of 351 million euros came ahead of the market’s expectations of 339.1 million euros. This week, it is also set to make a dividend payment of 333 million euros for the first time in a decade. Wall Street’s bullish view of Saipem Even after the turnaround, Wall Street analysts believe there is further upside for the stock. The consensus price target of analysts polled by FactSet points to 39% upside for Saipem over the next 12 months. “We remain Outperform with €3.40 price target underpinned by the company’s strong backlog and unchanged guidance,” RBC Capital Markets analyst Victoria McCulloch said in an April 24 note to clients. McCulloch also suggested the stock had given up some of the strong gains seen in 2024, and the 10% decline this year could be attributed to the current macroeconomic factors rather than a company-specific issue. Others share that view, including Berenberg’s analysts led by Richard Dawson. “The stock has taken a leg lower in recent weeks due to weaker sentiment from lower commodity prices,” Dawson said in a note to clients on April 30. “However, management has not yet started to see changes to clients’ investment decisions, with major tenders still occurring and a stable (and large) pipeline of future opportunities available to Saipem.” More broadly, earlier this year, the company announced that it’s pursuing a merger with its peer Subsea 7, and will emerge as Saipem7 once the transaction completes. JPMorgan analysts also remain bullish in their investment case for the stock. “Saipem’s investment case has been blighted by execution issues historically,” the Wall Street bank’s analyst Kate Somervill said in a note to clients in March. “That said, under the new management team, the company has gone through a thorough backlog review and has returned to a period of high earnings growth (consistently beating guidance). We see significant backlog growth from its exposure to offshore where there are only three key global players, and it should benefit from strong pricing power given market consolidation,” Somervill added. As for Schroder’s Adler, the funder manager continues to look for value stocks — and isn’t deterred by the quality of the business behind them. “So, whilst we would rather buy good quality businesses — and we do like buying good quality businesses — if you’re looking at the cheapest bit of the market, you have to look at everything,” Adler added. Saipem declined to comment.
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