Ardevora’s Lang: Why UK giants have suffered summer share price shocks

Jeremy Lang of Ardevora

Ardevora’s Jeremy Lang has pinned the high volume of double-digit share price falls in recent weeks on the fallout from management running firms with only a “narrow margin of error”, while explaining why he has avoided the businesses that have been hit particularly hard.

In recent weeks, FTSE-listed firms such as Provident Financial, Carillion, WPP, Dixons Carphone and AstraZeneca have all suffered.

In the case of Provident Financial, which is held by Neil Woodford and Invesco Perpetual’s Mark Barnett, shares fell nearly 70% after the firm issued its second profit warning in three months and the CEO resigned.

Lang, who runs the £133m Ardevora UK Income fund, said: “In some periods like this things can change very quickly. There is a lot of unpredictable change at the moment and political and economic shocks. Firms have been run by management with a very narrow margin of error.”

He likened the situation to that of miners, which suffered sharp share price falls in 2015 after companies embarked on aggressive expansion plans.

Many firms later underwent senior management changes, including Rio Tinto and Anglo American, and are now run in a more disciplined way.

Lang held Dixons Carphone during the first half of the year, but sold in July after identifying several “red flags”.

He said: “You have to keep probing these firms and be as objective and empirical as possible.

“Electricals was one of the first areas to be impacted by Amazon and the company needed to adapt to the competition. We bought it at the end of December but it seemed it was not as easy to change as the management had expected.

“There were lots of smaller red flags and the management was becoming evasive; it did not make sense to hold it anymore.”

He also avoided Provident Financial, believing it was an opaque company where it was difficult to assess the risks.

“The business model of a firm like that means things can go wrong very quickly. We only invest where we can see where the risks are and this was not one of those firms. Any problems would be difficult to fix.”

Strategic review

Separately, Ardevora recently concluded a two-year review of the strategic vision for the firm, which led to the departure of head of discretionary sales Jon Garland and equity fund manager Gianluca Monaco.

Lang said: “We worked our way through the divisions of the firm to assess where they were scalable and give them a hard shake-up, and two partners did not fit into what we were looking for.

“We have now built an in-house research team of three people with one more to join soon, and will recruit further in the long term.

“We have also built a client services team and are looking for a UK wholesale hire. In addition, we are considering a European sales presence, to be based in London.”

As a result of the growth of the in-house research team, Lang said Ardevora would be paying its own research costs under MiFID II, which he expects to be relatively low.