Nicholas Hornby

About Nicholas Hornby

Nicholas is a co-founder of Cerno Capital and lead manages several of the firm’s client portfolios. His investment career began at Cazenove & Co in 1990. In 1995, he joined CLSA rising to Head of Asian Sales, where he was responsible for the institutional business in the UK and Europe. He is a member of the Board of Governors of Downe House School and a Trustee of the Downe House Foundation. He is also a Trustee of the Cecil Estate Family Trust and Chairman of The Ashendene Trust, a UK charity. Nicholas is an Economics graduate of Bristol University and an Associate of the Chartered Institute for Securities & Investment.

The real sea change in Japanese equity is coming

By |2015-04-09T08:39:57+00:00April 9th, 2015|Asian/emerging Equities, Asset Class Returns, Cerno Capital Posts, Other Posts|

There is a sea change in corporate behaviour in Japan that is leading to a focus on capital efficiency, return on equity and higher dividends, as well as share buybacks. Valuations and earnings growth are favourable compared with other markets at a time when foreign investors are underweight and have been selling the market. Deflation has de facto ended, with rising wages, rising rents and better domestic consumption. Everything is in place for Japan to be one of the best performing major equity markets. The Nikkei 225 has rallied by 112% in total return terms since December 2012, when prime minister Shinzo Abe came to power. Owing to very strong earnings growth – 20% in 2014 – valuations are attractive. Japan is the only major developed market with lower price-to-earnings ratios (P/Es) now than in 2012. Japan’s forward P/E trades at 13.6x versus 17.3x for the US and 16.4x for Europe. On a price-to-book basis, Japan trades at 1.4x, which is the cheapest of all the major regions. Rising returns Return on equity (RoE) is rising, with corporate governance improvements driving profitability as shareholder returns increase. The focus on returning cash to shareholders and driving up RoE is now widespread across [...]

India: Topping up the Modi Mojo

By |2014-11-27T10:41:54+00:00November 27th, 2014|Asset Class Returns, Cerno Capital Posts, Other Posts|

The election-inspired excitement of Narendra Modi’s landslide victory in May has subsided and investors are beginning to question whether the Modi government can actually deliver on their promised reforms. The macro story in India is very powerful, with inflation falling, interest rates dropping and the currency strengthening. All this at time of weakening commodity prices, especially oil, improving India’s external position and further helping to bring inflation down. We view India as one of the better top down investment opportunities globally; while the market has performed well over the last year, the longer term opportunities are considerable. While the Prime Minister has been busy on the international stage in Japan, China and the U.S. securing major investments into the country, there has also been significant progress to change the way that business is conducted by the bureaucrats within the government. Corruption is one of the key areas under attack. The internet and electronic platforms are being used to allow a far swifter approval process rather than the old system of paper forms needing to be filled out and actioned. In this way the system is not being radically changed, but the mind set and work ethic of key functionaries is [...]

Lifting the kimono on a misunderstood Japan

By |2014-09-23T11:48:40+00:00September 23rd, 2014|Asian/emerging Equities, Asset Allocation, Cerno Capital Posts, Developed Equities, General Investment, Other Posts|

“It is not unnatural that, perhaps, in this matter of being misunderstood, Japan has more reason to complain than any other nation in modern times”. These words were written in 1900 in a book titled Misunderstood Japan. After stellar returns for investors last year, the Japanese stock market has been much less exciting this year. The numbers on the external accounts have been poor and this has prompted questions about the Japanese recovery. We have retained our allocation to Japanese equities which remains our largest single country allocation. We believe that the deflationary pall has lifted and that improved capital efficiency of companies will deliver higher profits and so significant returns to shareholders. The move out of deflation and to higher profits is only just beginning, meaning that the rerating of valuations in the market is at a relatively early stage. Figure 1. Share buyback Programs Source: Goldman Sachs. As at 8th September 2014. One of the key features of improved corporate profitability is shown by the introduction of the JPX Nikkei 400 index. This is an index of the most profitable companies. Sony and Panasonic have been excluded, a shaming omission perhaps. This plays into the ‘shame culture’ in [...]

Why we remain in Japan

By |2013-12-02T17:11:50+00:00December 2nd, 2013|Asian/emerging Equities, Cerno Capital Posts, Developed Equities, Other Posts, Regions|

Japan has been the stand out equity market of 2013, rising 50% in Yen terms during 2013. We explain the reasons for our continued interest in this equity market despite these gains having already been recorded. • Valuations on the Japanese market remain attractive. Although the market is up approximately 50% YTD, earnings per share have increased by 36%, so in price earnings terms the market is not much more expensive than at the beginning of the year. The PE ratio has actually declined from 18.0x to 16.8x. When looking at asset values the price to book ratio in Japan is 1.27, which has risen from 0.9x a year ago. This compares very favourably to the US equity market that trades at 2.6x price to book. • As the world continues to heal after the stresses of 2008, we can expect a normalisation of US interest rates to equate to higher US bond yields. We expect this will drive the US dollar higher against the Japanese Yen over the medium term. A weaker Yen is likely to be bullish for the Japanese stock market, with its high degree of earnings from exports overseas. • Japan is one of the few [...]