Buy Hold Sell: Where is the value?

Buy Hold Sell

Today NAB is offering a 10% fully franked yield, AMP Capital is trading at all-time lows and Janus Henderson is on PE multiple of just 6x. These are large and established businesses that look cheap on a variety of measures. However, in the current environment anything that looks cheap is destined to have a few warts.

In this episode of Buy Hold Sell we’ve invited two experienced investors to help sort the value from the traps. Jeremy Hook from TMS Capital hosts Matt Williams from Airlie Funds Management and Rhett Kessler from Pengana Capital, to hear where they think the value lies. In addition, each of the panellists nominates one stock that they believe offers compelling value.

Jeremy Hook: Welcome to Buy, Hold, Sell. I'm Jeremy Hook from TMS Capital. Joining me today is Matt Williams from Airlie Funds and Rhett Kessler from Pengana Capital. We're looking today at value stocks. Can you find value in a beaten-up part of the market to make some good, hard earned money?

National Australia Bank (ASX:NAB)

First stock we're going to look at, Matt, is National Australia Bank. Grossed up dividend 10% - buy, hold or sell?

Matt Williams: I think it's a hold, even though with that great grossed up dividend. I think the banks themselves are looking reasonably attractive but the great tailwind that they've had over the last 20 years is definitely tailing off mortgage growth. We've got a bit of a regulatory overhang there as well. But, look, I'm not in the doomsday camp so I think now it's just a good hold.

Jeremy Hook: It's a hold. Do you think, Rhett, that the Royal Commission effects have been built into the stock price? NAB, Buy, Hold, Sell?

Rhett Kessler: That's a good question. I think that it might actually be a value trap if you think it's all because of the Royal Commission. I think there is some real structural challenges that are potentially value destroying in the banks. NAB's got a great business franchise but they've got enough other issues and not 100% sure they're going to be able take out the costs that they need to take out. So I'd have a weak hold on it.

Janus Henderson (ASX:JHG)

Jeremy Hook: So weak hold, okay. Now in the wealth management business, Janus Henderson has been a pretty poor performer. Over $50 at the start of the year, about $38 now, buy, hold, sell?

Rhett Kessler: Sell. We have had a good look at it. We struggled to understand what's going on in that multitude of funds out there. And funds management is a tough business globally. Believe it or not.

Jeremy Hook: I like it when the fundies are saying that. Matt, buy, hold, sell? Janus. It's value now. Yeah?

Matt Williams: Yeah, look, it's a weak buy. I think there's a short term, maybe there's some money to be made in the short term, but I'd be looking for an exit if I'd made some good money. I just think that the fact that the business has rarely had consistent in-flows in funds. It's basically at the opposite consistent out-flows. Management change or one of the CEOs leaving. It's just a business now that you ask what its reason for being in total is there. It's a weak buy for a short-term trade.

AMP Limited (ASX: AMP)

Jeremy Hook: Okay now, steady yourself. AMP. Is there value there? Buy, hold, sell?

Matt Williams: I think there is some value there. If they have to wade through the pool of issues that they have. I'm saying it's a hold.

Jeremy Hook: Okay.

Matt Williams: I wouldn't be rushing in. You might get other opportunities there because these issues will wax and wane in their importance and their front-page ability to shock investors so, look, it's a hold.

Jeremy Hook: Okay. Hold on AMP. Rhett, can you buy, sell, or hold AMP?

Rhett Kessler: I'd like a fourth word, actually. I'd like an avoid.

Jeremy Hook: Avoid.

Rhett Kessler: Avoid. Which I suppose is the same as a hold if you don't have it. But we've had a detailed look at this. The connection between the bank and the wealth management business is just too close. So it's very easy to say that the bank's okay and you can hive off the wealth management business but, wow, holding those two together.

Jeremy Hook: That's avoid, but it's also really a sell, isn't it?

Rhett Kessler: Yes. I suppose so.

Jeremy Hook: Now, what is one that you do like? Something that you've brought to the show today?

SG Fleet (ASX: SGF)

Rhett Kessler: We like SG Fleet. It's a very competent fleet management business that has good visibility on future earnings. One of their competitors got themselves into trouble, Eclipse. So we're hopeful that something might come out of that. And so nothing like a bit of M&A on top of a 12 PE business where they're complete under-geared to generate a bit of real value.

Jeremy Hook: Buying SG Fleet.

Matt, what did you have in the value space for the viewers.

Origin Energy (ASX: ORG)

Matt Williams: Yeah, so the buy for me is a bit different this time for me in the sense that it's not totally riskless. Usually I like to offer up a riskless proposition, but at Origin Energy, which is in the process of, with the benefit of high oil prices, de-gearing quite rapidly. And so I think it's a pretty simple story in the fact that it de-gears, starts paying dividends, and the equity becomes worth more as the debt comes down quite fast. Under reasonably new senior management team, I think they're doing some good things. When I say it's not totally riskless, the fact that the balance sheet still got a little bit of debt on it, more than I'd like, but I think when this equation changes between debt and equity we can get some good share price performance. So Origin Energy: buy.

Jeremy Hook: Excellent. We've had to work hard with the guys, but we found a couple of value buys for you today.


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