Buy Hold Sell

In the current low growth environment, it is stocks with superior quality and earning power that are delivering great results for investors. Strong management, attractive margins and large markets are just some of the attributes that set these stocks apart. 

While most investors will acknowledge companies of superior quality it is valuations that are the source of disagreement. In this episode of Buy Hold Sell we ask Andrew Mitchell from Ophir and Jun Bei Liu from Tribeca to share their views on Magellan, Macquarie Group and Altium, three companies that have delivered exceptional performance. 

We also ask each guest to nominate one stock with superior quality that they think looks attractive today. 

Click on the player below to access the latest episode of Buy Hold Sell.


Transcript

Ben Clark: Welcome to Buy Hold Sell. I'm Ben Clark, and today we're looking through some quality stocks that are trying to grow into offshore markets and getting some real results.

Got Andrew Mitchell from Ophir and Jun Bei Liu from Tribeca to go through them with us. Andrew, I'll start with you. Magellan, they had a ripping result, although they did tap the market for a raising. Buy, hold, or sell?

Andrew Mitchell: For us, I'll say sell. Look, this is trading on a valuation of plus 20 times, 20 to 25 times forward price to earnings ratio. The market is expecting in perpetuity that it's going to keep raising funds, and the performance fees, importantly, are going to sustain. We know in this industry, they can be fleeting, and you're seeing what happens to Pendal. It trades now on a 13 times or so multiple when those performance fees go away. So the downside risk, I think, with Magellan is a lot higher than the upside risk, so it's a sell from us. But they've done very well. It's a good business.

Ben Clark: I've got to agree with that. Jun Bei, have you got a different opinion? Buy, hold, or sell?

Jun Bei Liu: I've got a hold to a slightly positive. So look, Magellan, back your winners. This is the only fund manager, listed fund manager, that's actually winning money, aside from Pinnacle on the smaller end. You back them, because the flows were enormous. And they just raised money for a couple new products, that's is they'll be sure that they will fill those products.

Yes, performance fees are going to be very difficult to cycle next year, but they’re winning money, and that at very, very good margins. So to me, stick with your winners. Don't invest money with the managers that are actually losing money. You know what bad performance does to a culture. It's just going through that negative cycle. So stick with the winners.

Ben Clark: Okay. Macquarie's been a winner, and a great money manager over the years. It's actually raising capital at the moment. Would you be looking at the raising? Is it a buy?

Jun Bei Liu: Look to me, Macquarie's probably a hold again to the positive side. I do believe this is one good financial company or bank that give you that leverage to a lower interest rate. We all know that interest rates are going lower around the world, and that company has very good leverage into it. They're raising money, of course. Does that mean they increase their war chest? Maybe they will have M&A and that will be earnings accretive.

Ben Clark: Okay. Andrew, what a different view on Macquarie. I know you normally look at the small sort of end of the market, but they have been a great performer.

Andrew Mitchell: Look, it's not my area of expertise, but when I see a company raising a billion dollars to, I guess, build a war chest and build its regulatory capital that it may need, for me, that seems pretty opportunistic. I think the board and management, my guess would be that they think its valuation's pretty full at the moment, and they're going to take advantage of that and raise some more capital, more loot.

Ben Clark: Yeah. Altium. I can't remember them doing a raising. They had a ripping result in August. Buy, hold, or sell?

Andrew Mitchell: It's a hold from us. From us, it actually sort of missed the results, but the outlook was fantastic. The market's factoring in that 2025 target of US$500 million. We owned it for a long time in the past. We don't own it now. We're waiting and seeing more confirmation that it's on track to hit that $500 million target.

Ben Clark: Okay. Jun Bei, I like companies that set long-term goals for themselves. Is this one a buy?

Jun Bei Liu: Look, this one is a buy for me. By far, I think this is the best tech company around the India-Australia market. It offers a very strong growth, and as we talked to you before, the growth outlook. It also doesn't cost you that dear when compared to the like, such as WiseTech, for example. And this company, in terms of accounting treatment of some of its development cost, it's one of the most conservative for when you compare it to other tech companies, in terms of how they capitalise on the balance sheet and the like. So to me, it's a very high-quality company. I stick with that.

Ben Clark: Yeah. Okay. Now, asked you to bring one in, a company that's growing offshore, high quality. What have you got for us?

Jun Bei Liu: Look, this one is a little bit boring. It's going to be CSL. It is the name that has delivered for decades. The earnings growth momentum, it continued to be very, very strong. Just as we thought, for the last five years, almost every year we thought, "That's the end of the growth," and they manage to do another double digit. This year, they gave an enormous earnings guidance outlook. To us, it's a very high-quality company that will offer very defensive growth profile.

Ben Clark: Yeah, it's been a great performer. And Andrew, have you got one for us?

Andrew Mitchell: Afterpay. Look, Afterpay has been one that's served us at Ophir for a long time very well. We are still right behind it. That result last week was a phenomenal result. It beat on every line. You saw the U.K. showed really good growth, as good as the U.S. And they're signing on more retailers on the U.S., another couple of big retailers in the U.S. So we think they're on a wave. They're riding the millennial, and they're shunning away the credit card. They're using the buy now, pay later space, and they're going to continue to ride this wave around the world.

Ben Clark: That's great. It can be well worth looking for companies that are fishing in much bigger ponds.

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Comments

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Graham Mail

Great to see the stocks I hold being discussed in a positive light