Top global equity stock picks compiled by Sanlam Private Wealth

Top global equity stock picks compiled by Duncan Burden and William Ball, Investment Analysts at Sanlam Private Wealth UK:

Structural growth

MasterCard is a well-positioned business exposed to a structural growth market, with electronic payments set to materially expand over the coming years. The business enjoys the rare combination of a dominant position in a market with a clear path to growth. This is a fundamentally robust business with cash flow from operations increasing by a 36% per annum, and net income by 28% since listing in 2006. We believe this trend will continue for the foreseeable future backed by its very low capital expenditure requirements and cash generative business model.

We view Accenture as an attractive name with its highly cash generative model and well diversified business in the IT industry, making it relatively defensive in the event of macro deterioration. Expertise and customer relationships are a key contributor to setting Accenture apart from its peers; with more than a 100 clients contributing greater than $100m in annual revenue each. Accenture has a well-entrenched industry position and solid long term growth opportunities, enabling it to produce a return on equity around 55%, which we believe it can maintain for the foreseeable future.

Driven by its world-leading portfolio of beer brands spanning developed and emerging markets, dividend growth is a key objective for Anheuser-Busch InBev; consensus expects compound dividend growth of 13.5% per annum over the next three fiscal years. Although 2013 proved a difficult year for volumes, management have re-affirmed that the solution to the problem is sensible capital allocation. Growth potential in China is under-pinned by attractive pricing power; ABI has positioned its brands as aspirational, and is accordingly able to sell its brands at of four times the local equivalents’ prices.

Diageo has built a leading brand portfolio of spirits brands, with an unmatched span of the so-called ‘price piano’, meaning that Diageo is unrivalled in its access to entry-level, premium and super-premium spirits. A strong pound sterling has presented headwinds, as has China’s crackdown on governmental gifting. However, with the valuation sitting at a discount to its global peer group and more recently rumours of M&A in the beverages sector, we are comfortable that now is a good time to access this structural growth story

While investors continue to regain confidence following the quality control issues in China, the market is re-focussing on the sector-leading same store sales growth that Yum! Delivers via its enviable emerging market exposure. The firm’s Taco Bell brand, which contributes 20% of EBIT, is driving to enhance same/new store sales through the launch of a new breakfast menu. With return on equity in excess of 50% and an efficiently run balance sheet, we feel that the residual malaise surrounding China offers an attractive entry point.

As long term investors, we believe that McDonald’s can deliver a sustained recovery in US sales in particular whilst improving margins through a combination of adding debt, refranchising, and reducing admin expenses. With solid free cash flow generation, a growing dividend (6% p.a. over 3 years) and a return of equity north of 30%, we remain attracted to McDonald’s ability to deliver decent returns in the low double digit range.

Coca-Cola continues to grow its portfolio of non-carbonated soft drinks brands to diversify, as consumers' diets shift. Worldwide still beverage volumes increased by 8% last quarter, with solid volume growth across multiple beverage categories, including juices, ready-to-drink teas, packaged water, sports drinks and energy drinks, Coca-Cola continues to deliver value share and volume gains in this category. With a highly-reputed, shareholder-friendly management team delivering consistently high returns on capital, we remain confident buyers for the long term.

Self-help and growth

The long term growth drivers of rising wealth in emerging markets and the ensuing appetite for luxury goods is well-flagged, but perhaps less understood is the value Burberry can unlock through its ongoing business reorganisation. The insourcing of Burberry’s previously outsourced Beauty business and the movement away from a license model in Japan appears to be gaining traction, and should deliver growth and margin accretion over the medium term. The valuation is attractive on a relative basis, and the stock will be well-supported in the event of sterling depreciation.

We continued to see Microsoft growing its revenue at close to a 8% and earnings by just over 9% per annum for the medium term. Earnings are supported by excellent cash flow generation (operating cash flow +6.2 % CAGR over the past ten years) and a very strong balance sheet. Although Microsoft’s high margin software business is up against secular headwinds, its Azure and Office365 enterprise solutions are materially undervalued by the market in our view.

Unloved and undervalued

Samsung Electronics will show almost flat year on year 2014 EPS growth due to operating margin contraction in its handset business. However, we look past this short term deceleration to the book value per share, which will increase by over 20% this year due to the company’s attractive return on equity of 18% (or close to 28% excluding the healthy cash balance). The growth in book value this year translates into a price to book value of less than 1.2 times based on 2014 estimates. We see this as highly attractive for a business with stable, albeit moderating, growth prospects driven by product innovation at his mobile division and the ongoing strength of its semiconductor division.

We continue to believe that Oracle is nearing an inflection point of a positive secular growth trend associated with its database line as well as its core license sales growth. We suspect that traditional applications software will continue to struggle with secular pressures, but equally all but the worst of these fears appear to be discounted, with shares trading at the lowest valuation relative to the S&P 500 we have seen since before the tech boom. Considering the free cash flow yield of 7.6%, we see good long term value in this name.