by Alex Cowie
We heard from 11 of the market’s top fund managers yesterday at the Future Generation Investment Forum, with each offering at least one stock idea. If you missed it, we have summarised the key points from each presentation below and included the link to the recording.
Lifestyle Communities (ASX:LIC): An easy 30% plus dividends
Ryan Reidler, Cooper Investors
“Has a fantastic customer proposition, because it allows retirees to downsize to affordable, resort-style living, and at the same time release a big pile of cash that can go into the bank account.”
In the sweet spot of two emerging trends, the ageing baby boomers and the demand for affordable housing.
Low-risk, inflation-protected rental income streams
The Co-founder and CEO owns 11.5% of the stock
Can see a pathway from current price of $5.35 to easily over $7.00 over the medium term, while collecting a growing fully franked dividend
MacPhersons (ASX:MCP): Almost in the buy-zone
Matthew Kidman, Centennial Asset Management
Has been around since the 19th Century and has had a few transitions along the way. Stock is in transition again and could now be at the point that it is a buy.
Balance sheet is in transition as well, with debt reduced over last 3 years from $93 mil to $15 mil. Sale of assets (Home Appliances business) raised $28 mil.
Today it manufactures and distributes health and beauty products, and household consumables internationally.
FY19 revenue forecast of $210 mil puts it on a PE of 10 times, and 7.5 times EBITDA.
Huge excess capacity in current operating facilities so is well positioned to make an accretive acquisition. Also poised for organic growth, and is making headway into China. Looks good, but wait for the next set of results to clarify.
Qantas (ASX:QAN): 3 potential catalysts over next 6 months
Philip King, Regal Funds Management
PE currently just 9 times, even though revenues and earnings growing strongly. ‘Cheapest stock in the ASX100’, and could easily go up 50% in next few years, as well as the reinstatement of a fully franked dividend.
90% of revenue from three key parts of the business: Domestic; Jetstar; and the Frequent Flyer program, which has 12 million members and can be further monetized with add-ons.
3 potential catalysts over the next 6 months:
- Analysts may be forced to put up targets following results in August
- Reinstatement of a consistent fully franked dividend of up to 40c, or 7% yield, which would bring back Australian shareholders.
- This could in turn lead to a return back into the MSCI index, which could drive a 30% price gain alone (was previously cut from the index due to high foreign ownership).
Spicers (ASX:SRS): Tangible book value is double the share price
Campbell Morgan, Sandon Capital
Paper merchant in Australia, NZ & Asia. A completely different beast to predecessor, PaperlinX. Now has a recapped balance sheet, slimmed down operations, which are now profitable.
Has a new board and management team, with shareholders represented. Any cash from cash generation and asset sales should get back to shareholders.
Undertaken number of corporate and operational initiatives. Now has net cash of over $30 mil, which underwrites at least half of current market cap.
Number of hidden assets: The land in Tasmania, and Singapore is worth a lot more than is carried on balance sheet. Sandon has done a lot of work to value those properties, and calculates the tangible book value is around 6c per share, which is twice the current share price.
Reported first profit in a decade during Fiscal 17, and underlying earnings during the first half of FY18 were up 40%.
Mastermyne (ASX:MYE) and Freedom Foods (ASX:FNP): 2 stocks on the rise
Ben Griffiths, Eley Griffiths Group
Mastermyne (ASX:MYE) is a specialist mining services company servicing the coal industry, with BHP Billiton, Anglo American, Rio Tinto and Whitehaven as clients.
Coal has been in the doldrums for a long time, but new greenfield projects have been announced, and Mastermyne is now bidding into a tendering pipeline worth over $1 billion.
The balance sheet is in better condition, the board and management hold around 20% of the stock, and the company returned to profit in first half of FY18, and trajectory looks strong.
Freedom Foods (ASX:FNP) is a producer and marketer of a range of natural foods and plant and dairy beverages. Holds ‘Australia’s Own’ and ‘So Natural’ in its brand portfolio.
Has invested in plant, and boasts Australia’s largest UHT processing facility. Has also recharged the balance sheet, and is well positioned for acquisitions and organic growth.
Is rapidly building a health food and beverage platform aimed at booming SE Asian demand for dairy, infant nutritionals and cereals.
Emeco (ASX:EHL): Increasing its utilisation rate
David Paradice, Paradice Investment Management
Emeco (ASX:EHL), provides equipment to mining companies, capped at $1 billion, with debt of around $400 mil.
Utilisation rates are low, and the opportunity lies in increase this. Generating a lot of free cash flow, which should reduce the debt load.
AMP: “There might not be a price”
Geoff Wilson, Wilson Asset Management
Separate to the stock idea presentations, Geoff dropped this bombshell in the panel discussion moderated by AFR Chanticleer columnist Tony Boyd:
“The problem with AMP is, I’ve been doing some work with AMP and talking to the other guys in our office; is there a price? Yesterday I was sitting down with some financial planners, one of them used to work in an AMP financial planning office, and he said look, this is just the tip, it is rotten the whole way through. And then I’ve spoken to some people in the insurance industry, and said how do you work this out… and they said they can’t come up with a value. I just don’t know what price it’s a buy at, there might not be a price.”
Sensata (NYSE:ST): Ticking all our boxes
Catriona Burns, Wilson Asset Management
Producer of sensors measuring tyre and brake pressures, transmission input speeds, and chassis stability control.
Trend toward increased connectivity and efficiency drives demand for sensors. Small input so demand is insensitive to price. Move to EVs is a tailwind, with the average car has $33 of sensors. EVs have closer to $45.
Ticks all our boxes:
- Management team is strong,
- Favourable industry dynamics,
- Strong earnings growth and
- Compelling valuation (currently trading at a 40-60% discount to peers in its group).
Also has 2 upcoming potential catalysts: A potential earnings surprise; and Capital management through a redomiciling from Netherlands to UK, which will allow dividend payments.
Facebook (NASDAQ:FB): Extraordinary growth on an ordinary multiple
Domenico Giuliano, Magellan Financial Group
Network effect creates very sticky users. Now has 2.4 billion users, 2/3 of them on regularly. 80 million businesses with Facebook pages, only 6 million of them are advertising.
Has acknowledged its three greatest risks: Weaponisation of data, respecting data privacy, and taxation. It is investing heavily in reducing these risks.
Extraordinary numbers: Grew revenues by 50% over the year. Grew net income and EPS by 60%. Has 10% market share outside China, and should double in ten years. Yet PE is less than 20 times, which is not much higher than the average across S&P500, which has nothing like this growth.
Also has three ‘freebies’: Whatsapp, Instagram, and messenger. Facebook hasn’t even started monetising them. Will use the platforms to connect people to businesses and transact.
Equiniti (LON:EQN): Priced for a disaster that hasn’t happened
Arik Star, Ellerston Capital
Equniti, UK-listed, $1 billion market cap. Has a 50% market share in an oligopoly. Client lifespan is ~20 years, with 90% revenues
Like ‘The Computershare of Europe’. Has rich cross-selling opportunities with average client paying for 7 services.
Trading cheaply, and was priced to lose a lot of clients. However clients have stayed on and indeed market share has increased. It has also just acquired the US’ largest shareholder services business from Wells Fargo.
Opens up massive cross-selling opportunities into the US market. Valuation doesn’t factor this in at all. Trading at a material discount to peers.
Qualcomm (NASDAQ:QCOM): Upside potential from resolution of disputes
Graham Hay, Antipodes Partners
Qualcomm, world’s largest owner of intellectual property used in communications, monetizes this with a licensing program. Also biggest designer of semiconductor communication chips for mobile phones, has 50% market share.
Chronic underperformer as licensing business has been under attack by largest clients, Huawei and Apple. However these disputes could be settled soon.
Price is $55, with earning power around $7 on each share. Unusual for a tech company, but has a 5% dividend yield.
Pershing Square (AMS:PSH) and Tiffany’s (NYSE:TIF): Two cheap stocks with activists on the register
Geoff Wilson AO, Wilson Asset Management
Pershing Square, the $4 billion hedge fund, is trading on a 23% discount. Some arrogance there which will get dealt with in time. Activists like Elliott turning up on the register.
Tiffany’s: An activist there too. New MD. Very interesting. Cheapest of the luxury goods brand; a ‘real sparkler’.