Australia is facing a population boom, with over 29 million people expected to be living in this country by 2030. And there are a number of stocks that could be big winners from this massive demographic tailwind.
Arena REIT (ASX:ARF), Think Childcare (ASX:TNK) and G8 Education (ASX:GEM) are three stocks with leverage to this thematic. Away from childcare, online educator 3P Learning (ASX:3PL) is gearing up for top-line earnings growth, while retailer Baby Bunting (ASX:BBN) is benefitting from the recent wipe-out of its competitors.
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Ben Clark: Welcome to Buy, Hold, Sell. I am Ben Clark. Joining me today, we've got Oscar Oberg from WAM and Dave Allingham from Eley Griffiths, and we're going to be talking about the population boom that is coming to Australia.
Twenty-nine million people will be living in this country by 2030. There's a lot of babies that are on their way, and we thought we'd have a look at a few of the players that might leverage off the back of this structural tailwind.
Dave, start with you. Arena REIT, so it's in the property space. It's actually been pretty good. Buy, hold or sell?
David Allingham: Look, it's been phenomenal. I'll say that's a hold at the moment. The REIT sector's been a great place to be, 40% premium to NTA. You can issue scrip units in the trust and buy accretively. It's probably going to stay well bid but certainly a hold. I wouldn't be chasing it up here.
Ben Clark: Okay. These guys have just raised capital I think Oscar. What's your thoughts on them?
Oscar Oberg: Look, sell for us. They're doing the right thing given their premium to be buying childcare centres right now, but look it's trading at a 30% premium to its net tangible assets so it's a sell.
Ben Clark: Okay. And GEM, which is the biggest childcare operator out there. It's been pretty choppy. Buy, hold or sell?
Oscar Oberg: Sell. It's been very, very choppy. Lot of false starts but look we think now is the time to buy. There's a lot of operating leverage in this business if they get occupancy moving. For the first time in about five or six years the supply is moving in their favour, so it's a buy.
Ben Clark: Okay. Bit of chequered past this one Dave. Have you got a different view on it?
David Allingham: Yeah look I'd say a hold. Only because it's come back a bit in the last couple of weeks. Look the management are doing a good job there, it's a tough industry. They've got a big scalable business that can't really grow via acquisition anymore. It is going to benefit from supply/demand fundamentals. Balance sheet's been fixed. It's in a reasonably good place, generates good cash but in our view 15 times, not a lot of growth. Bit tough for us.
Ben Clark: Okay. And then 3P which, it should be in the right space. Global technology, SaaS business, the market loves these businesses at the moment. It's been terrible. Buy, hold or sell?
David Allingham: Look, we've got a hold on 3P Learning. We own it in our emerging companies fund. It's some optionality on what they're … they've come to the end of their three-year strategic plan and the plan is to reaccelerate growth post the investment in R&D and some of their distribution sales networks in the US. So, I think if we see signs of that towards the second half of this year and into FY20, there's a real chance for re rating and earnings growth. So, we're hold. We're just waiting to see the right signal before we add to the position.
Ben Clark: Yep, and 3P? Oscar, what are your thoughts?
Oscar Oberg: Yeah, it's a buy for us. It's the cheapest technology company in the market, as Dave said. It's got no debt, $25 million of cash on the balance sheet. Agree with Dave. I think you're going to see signs of top-line growth in the US and Australia coming into the fourth quarter of the second half, at the full-year result in August. So, we think it's a buy.
Ben Clark: Okay. And moving on to the second largest childcare operator, Think. It's also been pretty choppy since it listed. What's your view on Think?
Oscar Oberg: Yeah, it's a buy. It's got a great management team and they've done well repositioning the business and investing into their new Nido brand. Ten times price-earnings multiple growing at 30%, it's a buy.
Ben Clark: Okay. Dave, Think? Buy, hold or sell?
David Allingham: Yeah, look I'd agree with Oscar, I think it's a buy. And to Oscar's point there's only sort of 55, 60 centres so you've got a low denomination there to grow the business via acquisition or even organically. So, to some degree it's got its own destination in its hands.
Ben Clark: Okay. And then Baby Bunting. We've all been stung by this store and it seems to have wiped out the competition. Buy, hold or sell?
David Allingham: I've got that as a sell today. I think we've seen a big rerate in the stock, 20 times earnings. Management are doing a great job, but competition hasn't gone forever. Gross margins are lower than most retailers too and I think the Aussie dollar, the weaker Aussie dollar will impact its gross margins into next year. Still a tough place I think, retail.
Ben Clark: Yep. Different opinion on that one Oscar?
Oscar Oberg: I do actually. Yeah, we think it's a buy. Think it's a big tailwind, the competitors going out of business. And we see upside on the gross margin going forward just in terms of what they're doing investing in the distribution centres. But for us it's growing at over 30% next couple of years, so it's a buy.
Ben Clark: Okay. Well, kids a seriously expensive business but not all players are reaping the benefits of all the oats being sewn out there.
Agree with Oscar on Baby Bunting, I topped up our holdings yesterday, and will buy in the dips. I certainly think that the managemnt has got fair idea of the future. Eric Wells
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