Some of the industry’s leading fund managers took to the stage yesterday as part of the Future Generation Investment Forum, with each manager sharing their top stock idea for the year ahead.
If you were unable to tune in, you can watch this valuable series of snappy presentations here, alternatively, I have summarised the key points for you in the wire below.
First up we heard from Gabriel Radzyminski from Sandon Capital present Consolidated Operations Group (ASX:COG), a $126 million nanocap.
COG has rolled up a number of brokers and aggregators that provide the conduit between 2.3 million Australian Small to Medium Enterprises (SMEs) and the large and growing suite of potential lenders (e.g.: banks, neobanks, non-bank lenders etc). The company has been busy and now commands 16-17% of the market.
As the next leg of this growth, it is proposing to merge with a fairly complementary business, CML Group (ASX:CGR), which has a similar market cap (~$100mil).
Gabriel said in his stock pitch that even without this merger, he values COG at 15c (versus its current price of 9c) and more if the merger is approved.
Next up, Marcus Guzzardi from Cooper Investors started with a remarkable anecdote I’d not heard before about Jeffrey Sprecher, the legendary CEO of $52 billion market cap Intercontinental Exchange (NYSE:ICE); apparently, Jeff bought the original assets for just $1 in 1997 (I've found a good account of it which you can read about here).
Despite humble beginnings, the company has grown into a leading provider of financial data and financial exchanges that today boasts the New York Stock Exchange as one of its assets. When ICE acquired NYSE, the exchange has seen little investment in years and by infusing it with new technology, ICE set it on the path it is on today.
A large portion of ICE's revenue now comes from data subscriptions for investors, sourced from user data across its exchanges.
Through diversification, constant innovation and shrewd acquisitions, this family led company has grown into a steady compounder.
David Prescott from Lanyon Asset Management went for another financial success story that's a bit closer to home, $664 million market cap Moelis Australia (ASX:MOE).
David emphasised three key areas of the Moelis business model:
1) A scalable asset management platform with a runway to growth. It has almost $5 billion in FUM today, which he thinks is heading to $6 billion next year and $7 billion the year after.
2) An experienced corporate advisory and ECM business- with more people than larger players such as Credit Suisse and JPMorgan.
3) A very valuable co-investing “war chest”, which can seed funds and new products.
His sum-of-the-parts valuation for the three units totalled $5.60, versus the current share price of $4.50, implying 24.4% upside from current levels.
In the next presentation, Mak Landau from L1 Capital started by pointing out that after tipping Qantas at his last appearance at the forum, it has increased by a not-too-shabby 170%.
Mark then teased the audience a little with this year's stock idea, including hints such as:
- It is a well-known ASX200 company
- It produced $1 billion of free cashflow
- Produces 18% return on capital
- Is trading on a PE of just 11 (!) versus a PE of 24 for the market
- It has one of the biggest customer data services in the country, which is almost totally ignored
Can you guess what it is yet...?
Turns out Mark is confident enough to roll the dice with Qantas (ASX:QAN) for a second time, describing Qantas' PE of 11 as ‘ridiculous’, and pointed at its strong EPS growth outlook, under-geared balance sheet and 4% fully franked yield. One point to note is that earnings will be weak this financial year, but should market the low point for the cycle and rebound in FY21.
Incidentally, we found out from Future Generation’s Louise Walsh who hosted the event, that Jun Bei Liu's original thesis was Qantas as well. So, there you have two votes for the same stock from two best-in-breed stock pickers... When lightning strikes twice, it’s normally worth looking where it hit.
To avoid repetition though, Jun Bei presented an equally interesting alternative, Tyro. If you don’t recognise the name, it’s because it’s not listed yet! However, by next Friday it will be.
Tyro is a payments-solution to retailers. Her slide below provides a neat summary.
The company services retailers, hospitality, and medical centres, and with 51,000 outlets, it transacts $17 billion annually, or 10% market share.
The benefit to the consumer is that it is highly reliable, has extra functionality (e.g.: splitting bills or adding tips), incorporates Alipay and Zip, and is fully integrated with the point of sale. Jun Bei sees further verticals being added in time, and flagged a move into travel.
The travel theme leads us to the next presentation. Nick Griffin from Munro Partners made a compelling case for the investment opportunity on the vast numbers of Chinese international travellers. Which have exploded in recent years and now number 143 million per annum, putting them front of the pack, ahead of the Germans, Americans and Brits.
Their spending behaviour differs too. They sping big and they love luxury brands. You only need to look at near 50 billion Euro of sales achieved by Luis Vuitton to see how big the market opportunity can be.
We know about the big luxury brands but what about the smaller end making their mark? In this category, Nick highlighted Italian name Moncler (MONC.MI) capped at 9.5 billion Euros.
Moncler produces luxury winterwear, and beanie in the picture above is the cheapest thing in the shop at $300, which is a bargain apparently.
This produces luxury winter wear, including that beanie which is apparently the cheapest thing in the shop. Nick highlighted two potential catalysts to monitor:
1) Mergers and acquisitions: With Tiffany very recently snapped up by LVMH, the successful smaller brands may be sitting ducks for M&A by the big players.
2) The 2022 winter Olympics in Beijing - Nick thinks this is likely to put winter-wear on the map for Chinese luxury consumers.
Bill Pridham from Ellerston Capital started the next presentation by pretending to be on hold with a call centre. The idea was to make us think about how frustrating customer service calls can be, which he then highlighted with some surprising stats. There are 270 billion calls to 1800 numbers annually, with a total cost of $1.5 trillion.
This is part of a wider thematic around 'customer centricity', which is one of the key differentiators between brands that fail and those that succeed today, which is why businesses invest heavily in it. Because not only is a happy customer a repeat customer, but a happy customer is also your best marketer too.
You may have heard of market leader Zendesk (NYSE:ZEN) as it has a strong Australian presence. The 300% increase in its share price in 3 years is a testament to the demand for effective customer service solutions.
Think of the huge shift in communicating in Text, Whatsapp, Messenger, etc in recent years. Companies in this space are leveraging the efficiency of textual communication, and the scalability achievable through AI and automation.
Within this theme, Bill looked at LivePerson (NASDAQ:LPSN) which has also been on a huge run. After initially signing up T-Mobile, it has picked up a suite of household names as clients and the company are confident of maintaining 20% annual revenue growth.
Closing proceedings, Matthew Haupt who manages WAM leaders looked at Amcor (ASX:AMC), which is up 10% this month.
At 16 times forward earnings, and a yield of 5%, he thinks it still looks cheap at this level and cited four reasons why it could run further from here.
1) While Amcor acquired Bemis last year, synergies are yet to flow through, and while management guide to $180 million, Matt thinks this is likely to be conservative.
2) Likewise, he thinks earnings guidance of 5-10% is likely to be exceeded.
3) There is little analysts coverage which he thinks will change, and catalyse price gains
4) Innovation on sustainable plastic use is likely to generate new revenue.
In summary, Matt described Amcor as:
"A very defensive, fast-growing company with a decent yield and on a reasonable multiple".
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Thanks Alex, nice summary. Not entirely convinced by Jun Bei Lui and Mark's arguments for Qantas though.