Six weeks ago, some of the brightest investment minds in the market presented their best stock idea to the Livewire Live audience. In the short period since, they are 3% ahead of the market. Read on for stock ideas from Chris Prunty, Tim Samway, Roger Montgomery, Andrew Mitchell and Oscar Oberg.
PSC Insurance (+13.9%): Oscar Oberg, Wilson Asset Management
Insurance roll-ups like AUB Group (formerly Ausbrokers) and Steadfast have been big winners for investors, gaining 40% and 75% respectively over the last two years. Oscar Oberg from Wilson Asset Management profiled an emerging insurance play, PSC Insurance Group (PSI), as his best idea.
The company has aggregated 30 insurance broking businesses across Australia and the UK. company management has form in this space, having rolled up OAMPS, a large broking business, which they sold to Wesfarmers. In terms of valuation, Oscar told us:
“PSC is currently trading on our estimates of FY18 PE of 22 times. We think this is more than justified given the huge growth outlook of acquisitions and organic growth with our forecasting assuming 25-30% earnings growth in FY18”
Wilson Asset Management seeks undervalued growth companies with identifiable catalysts. In the case of PSC Insurance, catalysts include deployment of the recently announced debt facility with CBA, giving $29million of acquisition capacity.
MNF Group (+6.5%): Chris Prunty, QVG
MNF Group was a strong performer during reporting season, jumping 15% in the week following results. The headline numbers were impressive, with revenue up 19%, NPAT up 34%, and EPS up 29% - partly from good organic growth, and also a big acquisition earlier in the year. The stock is covered by Morgan Stanley who maintained their price target of $6.15, versus the current price $5.05.
Ahead of reporting season, Chris Prunty from QVG singled the stock out as his best microcap idea, describing it as “a software company masquerading as a Telco”. He said the real value lies in the MNF’s ability to upsell software products from the network:
“The network is the trojan horse, from which they sell into high-value added software services“
Chris pointed out that MNF ticks all the boxes of key criteria laid of their research framework:
- High incremental margins
- Low reinvestment requirements
- Low competition
- Defensive positioning
- Recurring revenues
Integrated Research (+0.3%): Andrew Mitchell, Ophir Asset Management
Andrew kicked off his talk saying that his top stock idea was a global leader in its field, has 120 Fortune 500 companies as clients, was high-growth and high-quality, and is covered by just one broker, Bell Potter, though a few more brokers have initiated coverage since then, Evans & Partners and RBC Capital Markets.
The metrics are no less intriguing for this unknown global success story based in North Sydney. Revenue is 80% recurring, has been growing at 23% on average for the last 8 years, and the market is only 20% penetrated so far. EBITDA margins are 40% and ROE is 30%. The valuation looks compelling alongside some of its larger peers.
REA Group (-4.8%), Roger Montgomery, Montgomery Investment Management
In presenting REA group as his best stock idea, Roger Montgomery said that part of the reason he likes it so much was around its sustainable competitive advantage as a price setter:
“The most valuable competitive advantage of all is the ability to charge a higher price without a detrimental effect on prices. REA has this ability to increase its prices without a detrimental impact.”
Their valuation on the stock is currently $80, versus its current price of $66, which doesn’t cater for the higher turnover rates of a mature market, or longer listing times if clearance rates fall.
The stock fell slightly on its results, in which strong domestic result was offset by weakness in Asia. FNArena reports that: “Brokers consider the domestic performance solid against a backdrop of declining listings, laud REA's dominant position and suggest the sell-off was unwarranted. Hence three upgrades, leaving four Buys and four Holds.”
Corporate Travel Management (-7.2%), Tim Samway, Hyperion Asset Management
Tim Samway from Hyperion Asset Management highlighted the superior customer proposition (personalized service, innovative tech, ROI to clients, and a flat fee structure) as a key part of the investment strategy for Corporate Travel Management, and as a driver of organic growth in the future. He expects revenue growth and EPS growth to average 22% and 28% respectively over the next five years. He sees organic growth as being the key to the story.
The stock has fallen 9% since its results. FNArena reported that: “Corporate Travel missed most brokers. Revenues were nevertheless strong and boosted by acquisitions, with more acquisitions expected. Forex was a drag. While all brokers retain a positive view, some cannot justify the valuation. One downgrade to Hold makes three, while two Buys include a downgrade to Accumulate from Ords.”
Interestingly the short position has eased off somewhat sharply since the results:
Market Masters outperforming again
In case you missed it, last week we also reviewed the stock ideas from the Market Masters panel at Livewire Live. On average, the stocks picked in this panel have beaten the market by at least 25% each of the two years since inception. Just over a month since Livewire Live 2017, and this year’s stocks are already ahead by 3.1%. You can access them here: (VIEW LINK)
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