The Wilson Asset Management investment team has a number of micro, small-to-mid and large-cap companies we believe will deliver solid share price growth over the next 12-months.
Woolworths (ASX: WOW)
While Coles was winning the battle for market share over the last five-to-seven years, the tide is now turning, with Woolworths recently reporting like-for-like sales growth of 4.5%, while Coles’ increased by just 1.2%. Since Woolworths CEO Brad Banducci’s appointment in February 2016, he continues to lead a turnaround of the company by closing underperforming hardware chain Masters, reinvesting into the core grocery network and repairing operational issues. History shows that when a player in the supermarket duopoly wins the battle for market share, it will maintain its dominance for a considerable time. Therefore, we expect the momentum behind Woolworths’ market share growth will continue into the foreseeable future.
Nine Entertainment (ASX: NEC)
As free-to-air TV broadcaster Nine Entertainment Co. takes ratings share from Channel Seven and the beleaguered Network Ten, we believe it will create opportunities for the company to increase advertising revenues over the next 12-to-18 months. In addition, Nine is set to benefit from several of its programs, such as Married at First Sight and Ninja Warrior, that have long-term potential and the opportunity to be monetised. The recent sale of Nine’s Willoughby site will provide the company with a $111 million cash injection in September, which could be used to seize on acquisition opportunities if proposed media reforms are enacted. Perceived to be in a structurally challenged industry and trading on a low P/E multiple of 10.5x, Nine is unloved and under-owned by institutional investors creating a value opportunity for contrarian investors.
Reckon Limited (ASX: RKN)
Predominantly an accounting software provider, Reckon also owns a market-leading practice management software business APS which is used by 70% of Australia’s top 100 accounting firms. While Reckon’s total market-cap is approximately $180 million, in our view the APS business alone is worth more than the company’s current market value. Reckon’s APS business, which generates just under 60% of earnings, is currently under-appreciated and significantly undervalued by the market. However, we believe that over time, investors will come to appreciate the strategic worth of Reckon’s APS asset and this will see the company’s share price re-rate. With the company broadly shunned by investors and trading on a low P/E multiple of 13x, Reckon offers another opportunity for contrarian investors.
Origin Energy (ASX: ORG)
Reporting $9.1 billion of net debt at its half year result, many institutional investors are currently steering clear of Origin with their mandates precluding them from investing in a business with these levels of debt. However, generating increasing levels of free cash flow, together with recent and slated asset sales, such as Lattice Energy, the company is deleveraging at a rapid rate. In combination with Origin’s focus on debt reduction, high energy prices are enhancing the company’s cash flow and bolstering its profitability making it an appealing investment proposition.
Data #3 Limited (ASX: DTL)
Historically a re-seller of desktop software, Data#3 is transitioning to a cloud-based software business. With cloud-based software providing higher margins, the company’s change in strategic direction is starting to deliver significant revenue growth for the company. Data#3 has considerable free cash flow which ensures the company is well-positioned from a capital management point of view and to make future acquisitions to supplement existing revenue streams.
Pacific Current Group (ASX: PAC)
Formerly known as Treasury Group, Pacific Current Group, owns stakes in several boutique funds management businesses in Australia and overseas with aggregate funds under management (FUM) of $63.7 billion. Over the past two-to-three years, the company’s share price fell as the business faced challenges including poor performance of one of its two flagship funds and issues with its capital structure following its merger with Northern Lights Capital Group in 2014. More recent developments have seen an improvement in Pacific Current’s outlook with the company repairing its balance sheet – last month it raised $33 million through an oversubscribed institutional placement. In addition, two of the company’s US-based fund managers, Aperio and GQG, have recently increased their funds under management significantly to contribute substantially to the 10.9% increase in Pacific Current’s aggregate FUM in the two months to 31 May. We believe PAC offers a good leveraged play and expect continued growth of Aperio and GQG’s FUM in particular to drive the company’s share price higher over the next two-to-three years.
At the time of publication, entities managed by Wilson Asset Management own shares WOW, NEC, RKN, ORG, DTL and PAC.
Established in 1997 by Geoff Wilson, we are an independently owned investment manager based in Sydney. Today, Wilson Asset Management is comprised of eight investment professionals who offer a combined investment experience of almost 100 years.