At our recent Shareholder Presentations, our pro bono fund managers presented their high-conviction investment ideas. Read their stock picks below. You can also read the coverage in the Australian Financial Review.
Tribeca Investment Partners
Jun Bei Liu, Portfolio Manager
Stock pick: Goodman Group (ASX: GMG)
Goodman Group is a globally renowned property company specialised in industrial properties. It has been building warehousing infrastructure for large global businesses such as Amazon for decades.
In its recent FY23 result, GMG has unveiled that not only it is a world class industrial property leader, it also has build an extensive pipeline to construct Data centers. There has already been close to 4 GW of data center capacity been agreed with its global partners, larger than any player here in Australia.
We see Goodman group as a core holding of any portfolio with strong management track record and decades-long global capital partnerships, its move into data center ensures the business is well leveraged into the digital era.
Stock pick: Pro Medicus (ASX: PME)
Pro Medicus is a health software company which is proving the value of cloud deployment of software.
It is a leading provider of software solutions for hospitals to manage the rapidly growing diagnostic imaging data sets with the groups streaming technology offering a clear advantage over competitor offerings. Promedicus’ Visage software offers near instantaneous access to state of the art diagnostic tools from virtually any location while many competitors are using legacy compress and send solutions which reduce the productivity of doctors. Promedicus has also demonstrated its software can be deployed in the cloud despite the ever-growing image files sizes. Cloud deployment offers a clear advantage in terms of security and allows the software to be offered to health providers of all sizes given it removes the need to maintain expensive on-premise hardware.
Despite the impressive customer list, Pro Medicus’ market share in the US is only 7% leaving enormous opportunity for growth. In addition, the group is developing software to cater for images from other medical departments, starting with cardiology. The new cardiology software was demoed at a recent conference is now being trialed by customers – we expect the company to announce it first official deployment of this new offering in next couple of months. Pro Medicus’ established share and state of the art technology positions it to be a key player in the deployment of AI tools to support diagnosis.
Pro Medicus is an attractive long term buy given its enormous growth potential and rising margins thanks to increasing prices and the low cost deployment.
Eley Griffiths
Ben Griffiths, Director
Stock pick: Abacus Storage King (ASX: ABK)
Recently spun out from the listed Abacus Group, ASK is a specialist REIT that owns, operates and manages 197 self-storage assets across Australasia. Adoption of self-storage in Australia is in its infancy when compared to the US and covid-driven lockdowns sponsored a surge in popularity that shows no sign of abating. The trend to multi-res living, ecommerce distribution and suburban population growth will provide secular support to demand levels. Significantly, sector consolidation of independents by the 3 big players, ASK included, will be positive for industry economics over time. Separately, ASK is pursuing its own green and brownfields growth strategy.
Stock pick: Alliance Aviation (ASX: AQZ)
Alliance offers long tenor contract aviation services for Australian mining and energy companies as well as ‘wet-lease’ aircraft for both Qantas and Virgin. The seasoned management team bring an entrepreneurial verve to a conservative sector, with 70 lightly flown, reconditioned aircraft employed within the fleet growing to ~ 90 by FY26. Their aircraft of choice, the E190, is in hot demand by international carriers. An active investment phase (largely new aircraft purchases) has temporarily made for elevated debt levels and this has unsettled timorous investors, resulting in a softer share price and an opportunistic entry point for investors.
Magellan
Nikki Thomas, CFA – Global Portfolio Manager
Stock pick: SAP (SAP-GR)
Enterprise software is home to some of the most attractive business models in the world, and nowhere is this more evident than in Enterprise Resource Planning (ERP). ERP is the central nervous system of the enterprise, powering mission-critical processes across the organisation in a seamless suite of integrated software. SAP is the global leader in ERP and related application software, formed through decades of expertise since its founding in 1972. This leadership is evident in the fact that 99 of the 100 largest companies in the world run SAP, and 87% of total global commerce volume ($46 trillion) is generated by SAP customers.
The critical role ERP plays for enterprise customers to function and to differentiate their business processes confers strong pricing power and customer retention rates for SAP.
It has been transitioning its on-premise, licensed model to cloud subscriptions and is hitting a tipping point on acceleration of adoption of its cloud solutions. SAP’s cloud revenue has grown rapidly and already represents half of its €27 billion in total software revenue, within which its most strategic cloud businesses grew over 50% in 2023. The company has a multi-year runway to harvest the opportunity, capture additional value from new innovations like AI, all while reaping further operating efficiencies. We believe its growth journey is only just beginning.
At the same time, under new CFO leadership, it is addressing legacy costs and structures to drive out inefficiencies and we anticipate significant headroom in margins through both shifting business mix and efficiencies. Generative AI is an enabler within its business and a powerful force on adoption of its software solutions with customers, thus powering both top and bottom lines.
Listen to our Take Stock episode with Nikki Thomas
In this episode of Take Stock Caroline Gurney, CEO of Future Generation, speaks to Nikki Thomas, Portfolio Manager for Magellan Financial Group’s Global Fund. With more than 20 years’ experience in markets, Nikki is recongised for her work in brining global equities to Australia and prides herself on investing in the world’s best global stocks. Nikki shares insights on trends from the recent US reporting season, her market outlook, and optimism about the US market.
Clime Investment Management
Will Riggall, Chief Investment Officer
Stock pick: Worley Limited (ASX: WOR)
Clime looks for companies are exposed to attractive short and long term thematic drivers, which have developed an industry leading position that can deliver long term sustainable growth and return on capital. We spend most of our time understanding a company’s industry position which is underpinned by management quality and corporate strength.
Worley (WOR) is one of the most attractive stocks exposed to decarbonisation, a structural growth theme that will play out over multiple decades. The company is set to benefit from dual tailwinds of commodity price driven capital expenditure and energy transition investment. We expect revenues to accelerate with margins set to expand from current levels driven by internal efficiency projects as well as energy transition projects being delivered at higher than historical margins due to their complexity.
The company has rallied strongly since we initiated the position, increasing 75% over the last three years against a market that has increased 30%.
Worley is set to remain a core holding in the Clime All Cap portfolio as the group benefits from committed capital spend to meet energy transition targets. The group’s capital light model, global footprint and diversified industry underpins our conviction in the company’s medium-term outlook and future strong returns to shareholders.
Lanyon Asset Management
David Prescott, Founder and Management Director
Stock picks: Mineral Resources (ASX: MIN) and AIC Mine (ASX: A1M)
Lanyon’s founder sees three catalysts for Mineral Resources. First, the company’s new iron ore mine will come on stream in June and will ramp up to become a substantial cash cow for the business, and one the market is underestimating. Second, that mine will be supported by a 150-kilometre road to port that Prescott believes will cost about $150 million to build, but which MinRes can sell a 49 per cent stake in for up to $1.4 billion.
Finally, there’s the group’s growing gas business, which Prescott says will soon be granted an export licence. He thinks the stock, trading at almost $69, is worth up to $130 a share.
There’s no hotter commodity than copper right now – see BHP’s $60 billion takeover bid for Anglo American as proof – and Prescott sees potential in AIC Mines, whose copper mine in Queensland is set to scale from 13,000 tonnes to 20,000 tonnes over the next few years, with costs falling as production rises. “We think we are buying that company on two to three times free cash flow, which is extraordinarily cheap.”
Listen to our Take Stock episode with Nick Markiewicz
In the second episode of Take Stock, Caroline Gurney, CEO of Future Generation, speaks to Nick Markiewicz, Portfolio Manager at Lanyon. Nick discusses his investment process and how it has evolved over his career, how Lanyon selects companies to invest in and the investment case for Universal Music Group.
Munro Partners
Qiao Ma, Portfolio Manager
Stock pick: Vertiv (NYSE: VRT)
Vertiv is a company that provides the essential infrastructure for data centers. Its main services are power and thermal management systems. As cooling is essential to operating AI data centers (those chips run hot!), Vertiv’s broad suite of data center cooling technologies, including liquid cooling, which prevents overheating that could damage the densely packed and highly valuable chips and equipment. Vertiv was a recent spinoff from Emerson. Now run by a team of experienced and focused managers, we believe Vertiv could deliver 10%+ revenue CAGR, low to mid teens EPS CAGR, and better free cash flow conversion over the next few years.
Company: Nvidia (NASDAQ: NVDA)
Nvidia – At Munro Partners, what we look for is companies that have the ability to double their earnings over the next 5 years. For Nvidia, despite the strong performance, we believe the stock can still double its earnings over a 5-year period because those earnings are backed by the structural tailwind that is AI. We see the key driver of earnings for Nvidia, as accelerated computing solutions the company sells to customers to be used to power data centres. Data centres around the world need to adopt accelerated computing solutions to be ready to power all the AI applications of the future. Currently, we believe less than 20% of data centres adopt accelerated computing technology, and over time we expect this penetration to increase. In order for this penetration to play out, Nvidia plans to continue to release new products that enable this structural shift to occur.
Paradice Investments
Tom Richardson, Lead Portfolio Manager
Stock pick: Newmont Corporation (ASX: NEM)
Newmont has performed terribly over the last two years despite gold prices hitting all time highs. Rampant inflation through the mining industry has been a headwind for margins, compounded with mine specific challenges on labour, supply chain and expansion projects. Welcome to the mining industry in 2024!
The company is finalising the integration of Newcrest’s assets, and we see a pathway for better operating performance and increasing shareholder returns. A supportive gold price makes the stock look very attractive at current levels.
Through the acquisitions of Goldcorp and Newcrest, Newmont now have an enviable portfolio of the world’s best gold mines – long life and low cost. The Company also holds an undervalued copper development pipeline which we see as creating long term value for shareholders. While commodity markets (and stocks!) are invariably cyclical, the current set up for Newmont looks very favourable for long term performance.
Wilson Asset Management
Oscar Oberg, Lead Portfolio Manager
Stock pick: Megaport (ASX: MP1)
The lead portfolio manager started buying cloud connectivity provider Megaport in April 2023 with the arrival of new CEO Michael Reid, and is confident the experienced tech leader has turned around Megaport’s sales strategy. Oberg says Megaport’s global network will give it the chance to ride the AI wave, and disrupt incumbent telco businesses around the world. But he also says the market is underestimating Megaport’s ability to sell more to its existing customer base.
Read The Australian Financial Review Article “12 fundie picks for a tough environment”
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