The long-awaited sell-off in markets has finally arrived and as is usually the case, the bears are sinking their teeth hardest into the small fish, with the S&P/ASX Small Ordinaries Index off over 25% in the past month.
But the five stocks in today's episode aren't just any small caps; 3 of them (EML Payments, City Chic and WISR) featured in the fundies' #1 stock picks for 2020; 1 (Nanosonics) was nominated as a quality to stock buy at a cheaper price, and the last (Breville Group) is a company that both of our featured guests have a common view on.
These stocks have on average lost 40% of their value over the last 30 days, with WISR plummeting just over 70%. Is now the time for investors to put a brave face on, or should they bite the bullet? Tune into this week's episode featuring Chris Stott of 1851 Capital (making his inaugural media appearance after departing Wilson Asset Management in 2018) and Tim Serjeant of Eley Griffiths.
Notes: You can access the video, podcast or edited transcript for this Buy Hold Sell episode below. This episode was filmed on 11 March 2020.
Matthew Kidman: Welcome to Buy, Hold, Sell brought to you by Livewire Markets. I'm Matthew Kidman and we're going back. We're getting a bit retro. Growth doesn't exist anymore, but we're going to talk about it regardless. And to talk about growth, I've got Tim Serjeant from Eley Griffiths, and Chris Stott from 1851 Capital. Chris, let's go with you. One of the old market darlings being slaughtered. EML Payments, buy, hold or sell?
EML Payments (ASX:EML)
Chris Stott (Sell): Sell. I still think it is a market darling. The result was a little bit disappointing, didn't quite deliver enough. It's still in a very high, multiple over 20 times P/E, so sell.
Matthew Kidman: Very well owned, much loved, halved. Buy, hold or sell?
Tim Serjeant (Sell): EML's sell for us too. Look, it's a business model that's typically relied on acquisitions to fuel the growth. Organic growth has been reasonable too, but I think it two times geared now, it's just probably... I think it's a sell for us.
Matthew Kidman: Okay. One that's done quite well for a high growth stock and high P/E, Nanosonics. Buy, hold or sell?
Tim Serjeant (Buy): Yeah, we still like NAN, so it's a buy. Management team, ex-Cochlear, consumables revenue growth continues to be strong. Second product coming is a near term catalyst. We think Nanosonics is a buy.
Matthew Kidman: Health should sound good in this environment, Chris. Nanosonics plays the game. Buy, hold or sell?
Chris Stott (Sell): Sell. So, great product in the trophon, that's here to stay. But for the shorter-term, I think in this market a very high valuation and for us, we'd look to buy it a better price. So, sell.
Breville Group (ASX:BRG)
Matthew Kidman: Okay, so we're all going to stay home. We're all going to drink coffee and juice at home. Breville, buy, hold, or sell?
Chris Stott (Buy): Buy. One of the standout results of reporting season. To us the European region is the next U.S. over the next 10 years, so buy.
Matthew Kidman: Domestic caffeine's probably going to get us through this coronavirus, Tim. Breville, buy, hold or sell?
Tim Serjeant (Buy): Buy for Breville, agree with Chris. I think the thing that we like, is that we look out through the universe and there's not too many stocks we can find that we think can grow double digits at the revenue line sustainably, or organically. Buy.
City Chic Collective (ASX:CCX)
Matthew Kidman: Okay. Online seems to have found its feet in this market. Everyone's cautious, not going to crowded places. City Chic, big online business for oversized ladies and fashion. Buy, hold or sell?
Tim Serjeant (Hold): Hold for us. 53% of earnings online. We're just very cautious of retail in the short term. They've still got bricks and mortar stores in Australia. The Avenue acquisition's performed well. We think it's one that market will gravitate towards to, but it's still been a highly profitable trade from the lows.
Matthew Kidman: All these guys in the retail business around the world, they've been worried about supply, the supply line. City Chic, buy, hold or sell?
Chris Stott (Buy): Buy. We think they'll move throughout the next few months okay on the supply side. Really high-quality management team. As Tim said, over half of their sales are online, so fairly defensive in that regard. The thing we really like is just the complete lack of competition in that space, so buy.
Matthew Kidman: Okay, Wisr. Big rocket, big collapse, very volatile, illiquid. Buy, hold or sell?
Chris Stott (Sell): Sell. I think in these in these markets they're heavily relying on their funding, and with credit markets looking shaky, I think that doesn't bode well for them in the shorter term, so sell.
Matthew Kidman: Tim, credit markets are getting tougher, we know that. But terrific growth for Wisr. Buy, hold, or sell?
Tim Serjeant (Buy): We're going to say buy. The customer base is largely prime and their loss rates today would indicate that. Clearly delinquencies and unemployment are risks there, but we think they're now funded. Third-party validation via NAB. We think the growth is there for them to execute on. Buy.
Regardless of viruses, regardless of bushfires, Some companies just keep growing and they're worthwhile owning.
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Great to see Chris back on the scene.. made some good money on his recommendations a couple of years ago