“If I eat 2,700 calories a day, a quarter of that is Coca-Cola”. Warren Buffett on his diet being like that of a six-year old in 2015.
The market continued its buoyant run during the month of May as it smashed back through 6000 points asmid signs of an easing on lockdown and future recovery in earnings appeared on the horizon.
We had a busy month adding to existing holdings where opportunities arose, including: Smith & Nephew, Alphabet, InterContinental Hotels Group and Shaftesbury. Over the course of the month, many companies came to the market in a bid for fresh capital, including Beazley, in a well-timed and substantially over-subscribed placing. We like Beazley and believe them to be one of the highest quality names with Lloyd’s of London, evident in its market-leading performance. Though the group only underwrote 6.6% of the market’s premium in 2019, they earned more than 20% of the market’s profits.
On the other side of the ledger, we trimmed positions in the miners BHP Group and Rio Tinto, who both rallied hard over the middle of the month, and exited our position in Morrison (WM) Supermarkets, who reported strong sales growth over the first quarter despite ‘highly volatile’ trading.
Over the course of April and May, we have been building up a position in the London-listed Coca-Cola Hellenic (CCH), who operate in 28 countries ranging from the Arctic Circle to Nigeria, selling over 50 billion servings of Coca-Cola alone in 2019. Covid-19 and the resultant lockdown hit the share-price hard, substantially lagging its Consumer Staple sector peers. Every market CCH operated in closed down, apart from Belarus. Two of its major markets, Italy and Greece, are now showing signs of recovery and will see a reopening of the countries and, more importantly, tourism and hospitality sectors over the next few weeks. Greece is open to tourists from the 15th June and Italy has already reopened theatres and cinemas to the population. Soft drinks tend to perform well in recessions and coupled with the soon-to-be relaunched Costa Coffee products following Coca-Cola’s purchase from Whitbread last year, we saw the valuation, continued organic growth story and numerous high quality brands in their portfolio, as the catalysts to initiate a position in the business.
As Warren Buffett said in 2000; “If you gave me a $100 billion and said take away the soft drink leadership of Coca-Cola in the world, I’d give it back to you and say it can’t be done”.