Investors will often be confronted with rip-roaring stocks that are on a high and show no signs of arresting their ascent. In this episode of Buy Hold Sell, we take a look at companies which have witnessed some serious momentum that has been driving their share prices higher.
Up for discussion is software stock Bravura, Washington H. Soul Pattinson and Magellan Financial Group, as well as two other stocks our panelists believe have even further room to run.
Watch now as Matthew Kidman from Centennial Funds, Roger Montgomery from Montgomery Investment Management and Matthew Booker from Spheria Asset Management share their opinions about these high riders.
Matthew Kidman: Welcome to Buy, Hold, Sell. My name's Matthew Kidman, and we're going to talk about those stocks that are on a high and keep getting higher and higher. Joining me is Roger Montgomery from Montgomery Investment Management, and Matt Booker from Spheria. Matt, we'll start with you. Bravura Wealth Management. Software all over the world, big multiple, buy, hold or sell?
Matt Booker: It's a sell for us. We followed it for a long time, it was listed previously and it went private. It's come back and they've done a good job winning customers, but at that multiple, 40 times PE, cash-flow conversion has been very weak. We think there's some risk going forward that they miss earnings.
Matthew Kidman: It's done very well since it got re-listed.
Roger Montgomery: Yeah.
Matthew Kidman: Roger, buy, hold or sell?
Roger Montgomery: There's a lot more activity in the fintech space than there are profits. Yeah, I think the business is benefiting from the Royal Commission, slamming the banks on their vertical integration, and consequently financial planners looking for their own licenses and so forth. But the price just doesn't justify an investment at this point, so that's a sell.
Matthew Kidman: Okay. Let's go old world. Washington H. Soul Pattinson. Done very well. Buy, hold, or sell?
Roger Montgomery: Look, amazing business. The Millner family, amazing investors. There's no doubt about that, but the price is very expensive at the moment, so I'm going to put it on a hold. If it wasn't for the Millners, I'd put it on a sell, but because great people are running it, it's a hold.
Matthew Kidman: Matt, I don't know if you're looking for a job like Roger there, but Washington Soul Pats, buy hold or sell?
Matt Booker: Yeah, look, we think it's a hold. It's got some high-quality assets. We think TPG, the transaction with Vodafone is a good one. It's also got New Hope Coal, which is a good coal asset. And it's got Brickworks, which will see a turnaround at some point in the housing market. So, we think there are good quality assets there, we just think the multiple's too rich at the moment.
Roger Montgomery: Can I just add this? One thing, it's a great business for actually highlighting the issues with Australia. Number one, manufacturing is stuffed when it's cheaper to bring in a brick from the United States than it is to make one here for example. And then of course the energy issue that we've got for service businesses.
Matthew Kidman: Okay. Let's go round the world. Matt, I'll come back to you. Magellan Financial Group. Global wealth manager. Done very, very well.
Matt Booker: Oh, amazing. Look, to us, it's a hold. I mean, they've done a great job gathering assets, but also the performance of the funds has been spectacular, so you have got to take your hat off to them. Yeah, so it's a hold. It's not that expensive. I suppose the biggest risk for them is they're very exposed to the NASDAQ and the US equity markets and that looks like a bit of a bubble to us.
Matthew Kidman: They've been very good and everyone in our industry's jealous, Rog. Buy, hold or sell Magellan?
Roger Montgomery: No, no, why? You know, there's room for everyone. I think the issue is that fund flow is directly correlated with your three-year relative numbers. And if your three-year relative numbers are modest, then you're going to not see the same level of flows that you've seen in the past. On top of that, as Matt mentioned, it's a leverage play to the market, the market does seem a bit expensive, and so for me, it's a hold.
Matthew Kidman: Okay. What about something that's been rip-roaring that's just going to keep going?
Roger Montgomery: Yeah, look, I think Macquarie Bank actually. Out of the banks, I actually think this is a business that has completely transformed itself. It's under great new management. It's converted from a transaction business to an annuity-style business. Yes, there is some leverage, some beta to the market that you need to be aware of, but you know, around 100 dollars, I think it's actually good value.
Matthew Kidman: It's a bit above that at the moment.
Roger Montgomery: Yeah, you've got to wait.
Matthew Kidman: Okay, Matt?
Matt Booker: Yeah look, at the micro end, we like Vita Group. It's a reseller for Telstra, so it runs over 100 Telstra stores. What they've done well is they've actually converted sales in their Sprout product, which is their own brand. That's grown from $30 million to $50 million of their sales. And that's a very high-margin sales base. So, we think they're generating say, $35 to $40 million of EBIT out of Sprout alone, which is most of their profit. And that really protects the downside.
Matthew Kidman: It might not feel like it in the current market, but price actually does matter if you want to make money into the future.