Star fund manager Terry Smith spends £350m on new Church & Dwight purchase

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Star fund manager Terry Smith has bought $491m (£350m) worth of Church & Dwight shares in a move which fits his investment approach of buying strong brands after their shares fall in value. 

The £14bn American consumer goods group is best known for its Arm & Hammer line which includes baking soda, toothpaste and laundry detergent. Shares have fallen 13pc in the past six months to trade at $83 after hitting an all-time high of $98 in September 2020.

The new holding, revealed in a filing to the US Securities and Exchange Commission, is likely a new position in the £24bn Fundsmith Equity fund and worth 1.5pc of the fund.

It follows his swoop on LVMH, Nike and Starbucks last year in a relative flurry of activity for an investor who styles his approach as “buy good companies, don’t overpay, do nothing”. Mr Smith also sold Reckitt Benckiser after owning the shares for more than a decade.

However, analysts were unconvinced by the Britain’s biggest fund manager’s latest purchase. Erin Lash, of research group Morningstar, said Church & Dwight had an impressive 2020 and as it managed to grow sales by 10pc, versus low low-single-digits growth rates before the pandemic, as consumers sought comfort in well-known personal care brands.

However, she said shares were now overvalued as it lacked pricing power and a “moat” around its business. “Shares are trading close to 60pc above our ‘fair’ valuation, and as such, we do not recommend building a position,” Ms Lash added.

Analysts at JP Morgan, the bank, expect shares to trade at $79 by the end of the year, 5pc below the current level, They said sales growth would slow and it would have to spend more on marketing to promote new products.

Barclays analysts took a similarly pessimistic view. They said shares were worth $77 and the firm relied too much on acquiring new companies for increasing sales – a negative point for investors. 

The firm, founded in 1847, sold baking soda products until it became an “acquisition platform” in 2001 and went on a buying spree, adding 12 brands to its portfolio, including tooth pain reliever Orajel and Spencer Forrest, maker of Toppik hair care products.

Fundsmith Equity has returned 464pc since launch in 2020 versus 179pc for the average manager and 226pc for a global stocks tracker. 

Fundsmith declined to comment.