The 22 fund managers who invest on behalf of the Future Generation philanthropic listed investment company reveal their best ideas.
Regal Funds Management, Jovita Khilnani: ALS Limited
Whilst the higher gold price is yet to translate into more work for ALS, the recent spike in junior mining equity raisings gives us confidence that this will occur, albeit with a lag. Currency and market share movements add further tailwinds. Further, market share gains, if held, could represent another leg of upside, given ALS’ market share today (estimate 45 per cent-plus) is materially higher than in 2012.
Tribeca Investment Partners, Jun Bei Liu: Aroa Biosurgery
Aroa is an exceptional growth story. It is at an early commercialisation stage of its product portfolio and has already delivered impressive revenue growth as its products gain a foothold in the large US market. Aroa is currently generating revenue of $22 million which we expect to compound by at least 50 per cent annually over the next three years.
Sandon Capital, Gabriel Radzyminski: Boral
A new major shareholder has secured two board seats and is likely to be a significant catalyst for change at the company. The Australian construction materials business should trade at eight to ten times EBITDA, which represents a significant uplift from prices currently implied by the market. Other value in Boral that has been overlooked are its property assets and landfill royalty.
Sage Capital, Kelli Meagher: Corporate Travel Management
Like all companies related to travel, CTD has suffered a huge hit in earnings and share price since the global pandemic began. However, we believe the worst has now passed. The company has a good track record of both organic growth and integrating and extracting value from acquisitions. It recently made a large acquisition in the US which complements its existing business and significantly increases its scale.
Wilson Asset Management, Matthew Haupt: Insurance Australia Group
While IAG’s share price currently trades at decade lows, the recent appointment of a new CEO, a sound balance sheet and strong premium growth should see the share price recover. We believe that business insurance claims implied by the share price are overstated versus the reality and we expect clarity within a few months on this key catalyst.
QVG Capital, Chris Prunty: Johns Lyng
Johns Lyng is our largest holding and a company whose defensive growth and unique culture is under-appreciated by the market. The valuation is fair for a company with such strong organic growth and quality characteristics and see potential for further valuation upside should the company make acquisitions in its strata division. We expect the company to continue to grow in the mid-teens organically.
Firetrail Investments, Blake Henricks: Lendlease
The opportunity in Lendlease comes by way of the market’s focus on the engineering division of the business which has lost more than a billion dollars for shareholders. But that is in the past. Today assets under management are less than $40 billion, but we see potential for AUM to be $100 billion in the coming years.
LHC Capital, Marcus Hughes: Life360
The recent launch of membership will be a major tipping point in the history of the company. Membership will result in 360’s product offering being extended and additional value provided to a broader range of users. We expect this will result in a further increase in the company’s TAM, a reduction in churn rates whilst delivering a significant improvement in yield at very high incremental margins.
Cooper Investors, Justin O’Brien: Reece
The elephant in the room for Reece is Australia’s housing cycle – will this soon end? One thing the pandemic demonstrated is plumbing is essential and Reece remains focused on the more resilient segments. However, the positive trends in the US are arguably now more important. Despite the pandemic, new housing demand in the US is strong, underpinned by ultra-low mortgage rates and an under build of new houses since 2006.
Centennial Asset Management, Matthew Kidman: Service Stream
The financial 2021 year will be a consolidation year for the company’s earnings but with new contracts and growth in the non-telco areas, earnings should grow strongly from financial year 2022 onwards. With a price to earnings multiple of 14 times, we think it is worth owning.
Paradice Investment Management, David Moberley: Sydney Airport
We view this as a rare opportunity to invest in Sydney Airport – a high quality, well run, near-monopolistic asset which is unregulated with a long-dated concession expiry in 2097. We believe the SYD share price assumes a four to six year recovery period, which we think more than adequately compensates investors for uncertainty in the timing and path of the recovery.
Eley Griffiths, Ben Griffiths: The Reject Shop
I’m a subscriber to the theory that companies exhibit life cycles. Management have been busy with several sales initiatives with the recent exclusive Tesco deal an early look-in on the inventive merchandising strategy in play. Valuation on a FY21 EV/EBITDA of approximately six times appears reasonable for this retailing comeback.
L1 Capital, Amar Naik: Worley
Worley shares are trading around 30 per cent below pre-COVID levels due to the significant fall in the oil price earlier this year and concerns over COVID-19 restrictions leading to a subdued recovery in oil demand. We believe Worley is an attractive investment, as the market incorrectly perceives the company as a direct exposure to the oil and gas industry, while greatly under appreciating the flexibility of its engineering consultancy led business model and the diversified nature of its operations.
Magellan Asset Management, Kris Webster: Alphabet
Many of Alphabet’s businesses are dominant leaders in large global markets that should experience above-average growth for years to come. Despite its market leadership, we expect Google to continue to take share of advertising from traditional media due to its superior targeting abilities and the high engagement of its services.
Antipodes Partners, Andrew Baud: Capital One
COF has a great record for pricing and risk management, best evidenced by reducing credit limits in August this year. The moat around the bank’s financials is deep, enough so to withstand GFC level loan write-offs whilst still allowing the distribution of half of its current market capitalisation through to FY23 and trading on six times FY23 earnings (i.e. a 16 per cent-plus yield).
Munro Partners, Jeremy Gibson: Danaher
Investing in Danaher is like investing in the picks and shovel makers in the gold rush, rather than trying to predict which gold miner will strike gold. In this instance, the gold rush is towards cures for ailments such as COVID-19. Given Danaher’s strong track record of creating value from acquisitions and the pipeline of growth ahead from both testing and biopharma manufacturing equipment demand brought about by COVID-19, we see many strong years of growth ahead for Danaher.
Nikko Asset Management, Iain Fulton: HelloFresh
As a disruptor in the highly attractive $US7.5 trillion global food segment, in which e-commerce penetration is only 2 per cent, HelloFresh has an excellent opportunity to grow its total addressable market. In terms of the valuation, we believe the total addressable market is underappreciated. Management is rolling out new price points to address different market segments and the marketing spend required to attract and retain customers will decline as a percentage of sales allowing margins to stay high.
Morphic Asset Management, Claudia Kwan: New Oriental Education & Technology
EDU is a market consolidator beneficiary in a growing market with the best-known brand and the widest network footprint. EDU are guiding to 20 to 25 per cent capacity expansion per annum that will be a key driver of top line growth. Rising utilisation rates and average selling prices will drive margin expansion and a strong upward trend in earnings per share.
VGI Partners, Robert Luciano: Olympus Corporation
We think Olympus is a very high quality business, which is dominant in a highly consolidated and growing industry. There is tangible evidence to suggest management are intently focused on modernising the business and improving its efficiency. We think these factors will drive significant long-term earnings growth and attractive shareholder returns.
Ellerston Capital, Bill Pridham: Option Care Health
We consider that OPCH offers long term durable growth opportunities as it offers a better patient outcome at significantly lower costs to the payers –basically a win/win. We expect it to deliver mid to high single digit revenue growth for the foreseeable future which translates into double digit earnings growth as the platform scales. Private equity still owns circa 70 per cent of the business and this is creating an overhang on the stock as the market anticipates further sell downs.
Avenir, Curtis Cifuentes: Sony
Sony’s semiconductor division is today the world’s largest supplier of smartphone image sensors, with image quality improvements being one of the major selling points to smartphone buyers. Sony’s image sensors are industry leading, making them critical suppliers to smartphone manufacturers, including Apple, and the market is not exposed to the commodity dynamics we see in other components like memory.
Marsico Capital, Brandon Geisler: Spotify
Spotify currently generates the large bulk of its revenue from monthly subscription fees, but we think that this is just the beginning of the way in which the company can monetise its substantial user base. We believe Spotify mirrors Netflix prior to gaining appreciation from the investing community, and that we are on the launch pad ready for the stock to take off.