Investors have rewarded stocks demonstrating the ability to deliver growth while also exceeding market expectations. However, the multiples on some of these stocks are clearly dividing market commentators
In this episode of Buy Hold Sell, the panel put the spotlight on three emerging growth names including Citadel Group (ASX:CGL), IDP Education (ASX:IEL) and Bravura Solutions (ASX:BVS).
Tune in as Matthew Kidman from Centennial Funds asks growth specialists Prasad Patkar from Platypus and Steven Ng from Ophir for their views on these high flyers. Each of our guests also shares an emerging growth stock they believe looks attractive right now.
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Matthew Kidman: Welcome to Buy, Hold, Sell. My name is Matthew Kidman, and today, we have Steven Ng, from Ophir, and we have Prasad Patkar, from Platypus, and we're talking about emerging growth. Don't we love growth.
First off, Steven, Citadel (ASX:CGL), an interesting one. A bit of their own software. Bit of IT services. In between two groups. Buy, hold, or sell?
Stephen Ng: That's a hold for us, Matthew. It's transitioning 30% of its revenue, at the moment, in managed services to subscriptions of service. We prefer to sit on the sidelines, as management transitions that business.
Matthew Kidman: It's a funny one, Citadel. Buy, hold, or sell, Prasad?
Prasad Patkar: It's a buy, but I agree with Steven's thought on this. Investors need to take a long-term view on this. The transition, like Steven said, is going to take a while. We've had some management fractions as well, more recently, so they all need to settle and play out. So, it's a buy, but with a long-term view.
Matthew Kidman: Okay. This one's got everything. It's got education. It's got China. It's got online. IDP Education (ASX:IEL). Buy, hold, or sell?
Prasad Patkar: It's a buy. Expensive stock, so I can see why people in the market would be concerned about it, but the runway for growth is very long. Execution has been flawless. The digital investment's starting to pay off. So, we like it. It's a buy, for us.
Matthew Kidman: You'd have to be an Olympic high jumper to get over this multiple, Steven, but it's a terrific story. Buy, hold, or sell?
Stephen Ng: It's a buy. As Prasad said, not cheap. You know, quality never is cheap. Industry leader. Long runways for growth, and it's acting ... It's in a defensive industry, and we think the market is underestimating its progression to digital, in terms of the conversions of the students coming through. It's a buy.
Matthew Kidman: Okay. Wealth management software, with a great name, sexy name, Bravura (ASX:BVS). Making an acquisition, raising money. Buy, hold, or sell?
Stephen Ng: That's a hold for us. Punchy multiple. Growing well in that wealth space, and just recently raised $165 million in capital. We wouldn't want to stand in the way of management deploying that capital into the market.
Matthew Kidman: Okay. They've done a terrific job. Came to the market a few years ago. It's been one way, upwards. Buy, hold, or sell, Prasad?
Prasad Patkar: It's a buy for us. We were sceptics on the stock when the IPO happened, because customer concentration was a big issue for us at that time. But, they have done exactly what they said they would do in the two years that they've been listed. So, they've won us over. It's a buy. I agree with Steven, that the capital raised was a little bit quirky. I mean, it was not a small-
Matthew Kidman: Opportunistic.
Prasad Patkar: Opportunistic. And, we'd like to see how they deploy it. But, so far, the execution track record's been pretty good, and you would back them. It's a large, addressable market, again, and they've executed well. So, it's a buy.
Matthew Kidman: Okay, here's your chance. Something you've spotted, that's emerging and growing?
Prasad Patkar: We like NextDC (ASX:NXT). We recommend that your viewers have a look at NextDC, from a long-term thematic perspective. Again, a very good execution track record. The tailwinds, in terms of the data creation storage and interconnectivity between data centres, and within the data centre itself, is here to stay, and it's going to be quite powerful and compelling. So, I think NextDC will do well. It's not a business that's very easy to like. It's capital intensive. It burns a bit of cash, and It's going to take a while for that investment thesis to really play out in terms of big profits. But it's something that's got long-term tailwinds.
Matthew Kidman: Alright. NextDC, you got something you can match that, or even one up it?
Stephen Ng: Yeah, sure. My pick will be PSC Insurance (ASX:PSI), a brokerage unit firm, there. Effectively trading cheaper than its peers or Steadfast (ASX:SDF) and Austbrokers (ASX:AUB), growing faster, better balance sheet, and longer runway for growth. Also, has a more aligned management team there, as well, and north of 50% of the stock. They pay themselves modestly. They're rewarded by dividend growth. So, are we, as shareholders.
Matthew Kidman: Great names, and we all prefer to emerge than submerge. I've used that one, before. That's the only problem.
Bit of fun!