Samsung at Two-Year Low Lures Templeton Global Funds

By Adam Haigh

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Franklin Templeton Investments is betting a rout in Samsung Electronics Co. (005930) shares is overdone.
Peter Wilmshurst, who oversees two funds with more than $500 million at Franklin Templeton, said he’s investing in South Korea’s biggest company because valuations are attractive and its other businesses will help make up for a decline in income from smartphones. His Templeton Global Equity Fund (TEMGLEQ) beat 92 percent of peers over three years, data compiled by Bloomberg show. Samsung has lost 16 percent this year amid competition for
mobile phone sales from Apple Inc. and cheaper Chinese and Indian producers.
“Even if you have smartphones declining by a sizable amount, you still end up with a stock which looks pretty significantly undervalued,”Wilmshurst said in a phone interview from Melbourne. “It’s an area we’ve been happily adding to.”
The proportion of analysts with buy ratings on Samsung is the lowest since 2009, according to data compiled by Bloomberg. The Suwon, South Korea-based company’s market value sank about $29 billion this year as it lost market share in China and India to domestic producers while Apple’s new iPhones with bigger screens racked up record pre-orders.

Photographer: Victor J. Blue/Bloomberg

The new Samsung Electronics Co. Galaxy Note Edge smartphone is displayed for the media... Read More

“We’re mindful that they’re going to go through a slightly tougher patch,” Wilmshurst said. “They’ll have to work through a period where they get less profit out of smartphones at some point over the next three to five years, but at that point in time you’ll get the benefit of the diversification in their business, whether it be semi-conductors, memory or other businesses that can make up some of that gap.”

Fund Performance

The Templeton Global Growth Fund (TGG) placed fourth and the Templeton Global Equity Fund ranked 10th among 372 global equity funds available in Australia with more than $100 million in assets over the three years through Sept. 19, according to data compiled by Bloomberg. Templeton has about $922 billion in assets under management globally.
While some 83 percent of analysts tracked by Bloomberg still advise buying Samsung, that’s the lowest proportion since 2009, data compiled by Bloomberg show. The Korean firm in July posted its smallest quarterly profit since it became the world’s largest mobile-phone producer in 2012. The shares fell 1 percent to 1.15 million won in Seoul today.
Wilmshurst said he’s also buying Microsoft Corp., which is among the largest holdings in his funds. A 24 percent surge in shares of the American software-maker pushed valuations to their highest level in nearly five years. Microsoft trades at 16.7 times estimated earnings compared with a ratio of 7.6 for Samsung, Bloomberg-compiled data show.

Photographer: SeongJoon Cho/Bloomberg

An employee, left, helps a customer as he inspects a Samsung Electronics Co. Galaxy S4... Read More

‘Still Solid’

“It’s still solid,” Wilmshurst said. “It’s not as cheap as it was and obviously we’re going through a change in leadership and a somewhat repositioning of the company. Fundamentally we’re buying them because they are tremendously positioned as an enterprise software vendor.”
Microsoft’s Satya Nadella has been aggressive in making changes since he became chief executive officer in February, replacing Steve Ballmer. He has shuffled management, emphasized making Microsoft’s software products available for all types of devices, and announced 18,000 job cuts.