The current discount of Bellevue Healthcare Trust PLC (LSE:BBH) shares to the trust's net asset value (NAV) offers an opportunity to investors who believe in the manager's views that strong returns on health stocks will revert, given the long-term average premium that has previously existed, said analysts at Kepler.
The managers are “fundamental stock pickers, and pay little attention to benchmarks when constructing the portfolio”, the analysts said in a new note examining the half-year results last week.
In the six months to 31 May, the share price and NAV decreased 17.5% and 18.7% respectively and when adding in the final dividend for the financial year ended 2021, the company's shares delivered a total return of -16.1%, compared to a gain of 4.5% for the MSCI World Healthcare Index.
With the managers paying little heed to benchmarks, the analysts said, “one might imagine that performance will deviate from indices”.
Indeed, with the BBH portfolio consisting of 15.1% mega-cap companies and 8.5% large-cap companies, compared to 76.2% and 21.7% respectively for the MSCI index, the trust’s small-cap exposure “left the portfolio very much out of favour, which has contributed to the short-term underperformance relative to the healthcare index”.
But the analysts noted this “is a departure from the longer-term picture”, as on a rolling three-year basis, BBH has been “consistently ahead of the index and therefore in line with its investment objective”.
The Kepler team said it was instructive that the trust’s managers report seeing a divergence between share prices and operating performance.
“As one might expect from stock pickers, the managers are reacting.”
The interims results highlight that the team have been "taking advantage of the current weakness to re-establish some exposure to the dental sector…[and] added to our holdings in the diagnostics, healthcare technology, tools and services holdings", which has been funded by sales of companies in "managed care and diversified therapeutics, which have held up well on a relative basis".