Nov 23, 2024 · 24 min
Investors weigh pay, speculation and UK stock bargains
IC039 Investor Lessons: Management & Shareholder Misalignment
The discussion connects management incentives, speculative assets and company-level analysis to the patience required in smaller-market investing.
- 1Poorly aligned management pay can leave shareholders bearing the cost of deals and weak outcomes.
- 2Bitcoin and a $6.2 million banana become tests of how investors recognize speculation and market excess.
- 3Nvidia, Games Workshop, Sage, Jet2 and Michelmersh illustrate contrasting cases of growth, resilience and value.
Don't miss
The discussion uses Maurizio Cattelan’s $6.2 million banana to open a broader examination of speculation, Bitcoin and overheated markets.
The brief
Lord Lee and Chris examine how management remuneration can diverge from shareholder interests, using Plexus and other smaller-company cases to identify warning signs around deal bonuses, weak outcomes and poor alignment.
A $6.2 million Maurizio Cattelan banana and Bitcoin shift the conversation toward speculation: both force traditional investors to ask how value is established when enthusiasm outruns familiar measures.
The hosts then consider Alphabet’s antitrust exposure and Nvidia’s extraordinary growth, before turning to the patience required when UK small caps and AIM shares remain out of favour.
Games Workshop, Sage and Jet2 provide contrasting examples of strong businesses, with brand power, customer stickiness, fleet expansion and resilient demand supporting the investment case.
The closing bargain is Michelmersh Brick Holdings, presented as an asset-backed, cash-generative specialist waiting for a construction recovery despite difficult sector conditions.
What was said on this episode
41 statements · 26 positive · 15 negative
Plexus shareholders received no meaningful returns during eight consecutive loss-making years.
“shareholders have had nothing. It's had, I think, what did we tot up? I think there were 8 years, 8 years of losses, consecutive losses, £37.7 million aggregate losses.”
Listen at 1:25
Plexus shareholders received no meaningful returns during eight consecutive years of losses.
“shareholders have had nothing”
Listen at 1:25
Plexus’s former CEO received $881,000 after moving to non-executive chair.
“He's moved over to non-exec chair and just received a staggering $881,000.”
Listen at 2:22
Plexus shareholders experienced declining share prices and received nothing.
“What have shareholders got out? Nothing. They've just had descending share prices.”
Listen at 2:39
Plexus may achieve better shareholder alignment under its new CEO.
“Hopefully a new future with better shareholder alignment for them.”
Listen at 2:59
Deal-based CEO bonuses can reward transactions without demonstrating business progress.
“CEOs get paid for doing deals. They do a deal and the business gets bigger and they get seemingly a bonus for doing the deal.”
Listen at 3:09
Lord Lee recommends selling businesses when director pay is badly misaligned.
“We have sold out of businesses where we think the director pay is totally out of kilter.”
Listen at 3:32
Businesses with severely misaligned director pay eventually suffer a collapse.
“Sooner or later, things come crashing down.”
Listen at 3:43
Manalit should provide shareholders with ongoing priority allocations from collected cash.
“Why isn't there a priority return to shareholders? So it should be, yes, we raise cash. Yes, you pay out a bit, but the shareholders should— there should be an allocation to it all the time, ongoing all the time.”
Listen at 4:24
Manalit should allocate ongoing returns to shareholders before reinvesting all collected cash.
“Why isn't there a priority return to shareholders?”
Listen at 4:24
Manalit may eventually struggle to collect cash while management is paid and shareholders lose more.
“I don't know when the bubble's going to burst on this one. Sooner or later they'll have trouble collecting and still management will get a heap of money, but shareholders, they'll be even more in the red.”
Listen at 4:38
Manalit will eventually face collection problems while shareholders suffer further losses.
“Sooner or later they'll have trouble collecting and still management will get a heap of money, but shareholders, they'll be even more in the red.”
Listen at 4:41
Manalit currently offers little appeal to outside shareholders but substantial appeal to insiders.
“I don't see many appealing features at the moment for outside shareholders. I see a lot of appeal for those inside, but not for third-party shareholders.”
Listen at 5:38
The UK golf-course financing boom preceded a major market crash.
“And sure enough, it was, and the whole thing fell down. We had a massive crash.”
Listen at 6:34
Bitcoin had risen 60% since Trump’s election and was nearing $100,000.
“We have Bitcoin nearing $100,000. It's closing in on that. It's risen 60% since Election Day, since Trump's election.”
Listen at 7:46
Bitcoin was approaching a price of $100,000.
“We have Bitcoin nearing $100,000.”
Listen at 7:46
Bitcoin had risen 60% since Donald Trump’s election.
“It's risen 60% since Election Day, since Trump's election.”
Listen at 7:52
Alphabet’s Department of Justice antitrust case is more serious than investors anticipate.
“Our view is at the moment it's clearly more serious than people are anticipating.”
Listen at 9:11
Alphabet’s Department of Justice antitrust case is more serious than investors anticipate.
“it's clearly more serious than people are anticipating”
Listen at 9:12
Alphabet remains a strong underlying business despite antitrust pressure.
“Still a great business underneath it all.”
Listen at 9:54
Alphabet remains a strong, cash-rich business despite antitrust pressure.
“Still a great business underneath it all. Still a business investing like mad. It's got heaps of cash.”
Listen at 9:54
Alphabet’s underlying business is unlikely to change materially over two years.
“Is that going to change in the short term, even over the next 2 years? I can't see that.”
Listen at 9:59
Corporate breakups can ultimately benefit shareholders.
“even when they did happen, it was actually beneficial for shareholders.”
Listen at 10:39
Patient investors are often rewarded substantially.
“patience is often rewarded in spades”
Listen at 11:02
Patience is often highly rewarded when investing in depressed small caps.
“patience is often rewarded in spades.”
Listen at 11:02
Nvidia was generating a 62% operating margin.
“It's a 62% margin this business is generating.”
Listen at 12:07
Games Workshop could become a major UK success story with overseas performance.
“could be a great UK success story that's doing rather well overseas as well.”
Listen at 13:46
Games Workshop’s share price might decline if its entertainment adaptation is mishandled.
“If they don't, of course, it might go back.”
Listen at 14:06
Investors should read Games Workshop’s annual reports and accounts.
“I would implore people to read their annual report and accounts as well.”
Listen at 14:18
Sage benefits from visible recurring revenue and highly sticky accounting-software customers.
“The real beauty of Sage is, as a business, the visibility in recurring revenue. It's very rare that people really want to change a provider of accounting software. It's so sticky.”
Listen at 15:56
Accounting-software customers rarely switch providers because the product is highly sticky.
“It's very rare that people really want to change a provider of accounting software. It's so sticky.”
Listen at 16:01
Economic growth increases demand for accounting software.
“more and more companies are formed, more and more companies need accounting software. So it's a play on economic growth as well.”
Listen at 19:03
Intuit benefits from economic growth as more companies form and need accounting software.
“So it's a play on economic growth as well.”
Listen at 19:06
Lord Lee considers Jet2 a high-quality business.
“far and above, we think it's a great business.”
Listen at 19:33
Jet2’s Airbus A321neo aircraft are more fuel-efficient and have a 50% smaller noise footprint.
“far more fuel efficient, far quieter. Noise footprint is 50% less.”
Listen at 20:03
Jet2 shares are not expensive despite airline-sector volatility, so Lord Lee is retaining them.
“Airlines are notorious for their volatility, but the shares aren't expensive. I'm sticking with it.”
Listen at 21:01
Jet2 shares are not expensive, so Lord Lee recommends continuing to hold them.
“the shares aren't expensive. I'm sticking with it.”
Listen at 21:03
Higher employer National Insurance costs will ultimately be passed to Jet2 customers.
“the customer's going to pay in some form, aren't they? That's just the way the employer's taking the hit, but the customer will pay for it.”
Listen at 21:49
Micklemarsh Brick is well-run, asset-backed, cash-generative, and financially sound.
“Micklemarsh, we like it. It's a well-run business, great asset backing, great cash flow, decent balance sheet”
Listen at 22:09
Micklemarsh Brick should perform very well after construction activity rebounds.
“as long as these businesses can hold their ground a bit and we'll wait for that rebound in construction activity, old Mikkel Mersch and indeed the other larger brick manufacturers should do very well.”
Listen at 22:21
Micklemarsh Brick should perform strongly when construction activity rebounds.
“we'll wait for that rebound in construction activity, old Mikkel Mersch and indeed the other larger brick manufacturers should do very well.”
Listen at 22:24
Statements are attributed to the speaker as said on the episode and reflect their view at the time, not PodLume's. They are not advice.
Featuring
Maurizio Cattelan
United KingdomListen to the full episode and explore every guest, topic, and moment on PodLume.