Firetrail Investment’s managing director Blake Henricks believes the lull in the oil market has presented a strong opportunity to buy shares of engineering firm WorleyParsons.
Speaking at the Future Generation Investment Forum on Thursday, he said WorleyParsons is being deeply undervalued by the market as oil and gas investment rises.
“The oil and gas industry need to invest over time and the biggest beneficiary of this is WorleyParsons,” Mr Henricks said during his five-minute stock pitch. “They rent out their engineers on a dollar per hour basis. It’s a really simple business. In the past five months WorleyParsons have won more business than at any time since 2013. So the cycle is returning.”
He said the business’ success lay in its ability to survive the heavy falls in oil prices a few years ago, with revenues down 50 per cent.
“If you remember, oil was over $US110 in 2014 and it fell all the way down to $US28 in 2016,” he said. “The oil price has been recovering and at the moment we’re at about $US60.
“We love buying businesses that survive a crisis. When you do, you typically come out with a business that runs leaner and has a fixed balance sheet. We believe WorleyParsons is really well placed to grow earnings much faster than their revenues. It’s deeply undervalued at the moment.”
Mr Henricks said the $4.6 billion acquisition of the Jacobs Engineering Group’s energy, resources and chemicals business in October only gave the company further growth opportunities.
“It doubles the size of the business. We think that transaction will be terrific for Worley shareholders,” he said.
‘Double your money’
The Future Generation Investment Forum heard from a number of other fund managers, including Tribeca Investment Partners portfolio manager Jun Bei Liu who pitched produce supplier Costa Group.
“We believe the company will deliver you an over 30 per cent return. You will double your money in a few years time,” she said. It has “great management”, and the stock at current prices presents “a very attractive buying opportunity”.
Ms Liu said the management team’s decision to expand the business into other markets and shore-up its production line meant Costa had a strong investment case.
“The team at Costa have been with the business for close to a decade and have done an incredible job in reducing the agricultural risk inherent in the business.
“They have moved to different geographical locations so they produce fruit all year round. The demand [for fresh produce] is underpinned by the consumer shift into the healthy lifestyle and the demand coming from Asian consumers for high quality fresh produce.”
Wilson Asset Management’s Oscar Oberg said the collapse of Baby Bunting’s competitors laid the foundations for the retailer to become a “category killer”.
“Over the last 12 months, Baby Bunting’s competitors have been decimated in a tough retail environment,” he said. “This has left Baby Bunting with a dominant position in the market. Over time we believe they’ll became the category killer in the space, in the same ways Bunnings has become the category killer in the hardware space.”
Magellan’s Rosie Malcolm reiterated the global investment manager’s long Starbucks call, while Munro’s Nick Griffin said the changing food and beverage industry meant the time was ripe to buy companies such as Treasury Wine Estates and US-listed International Flavors & Fragrances (IFF).
QVG’s Tony Waters argued that Global Traffic Network’s increased presence in Canada was a strong positive for the company, Antipodes’ Graham Hay pitched the US-listed Cisco Systems, and Paradice’s David Moberley pitched plumbing part manufacturer Reliance Worldwide.
