Our World Cup squad in stocks
Aberdeen Standard Investments
With the Socceroos carrying the hopes of a nation into the tournament, the Australian equities team at Aberdeen Standard Investments has selected its own dream team of locally listed stocks. Just like Australia’s coach, Bert van Marwijk, the investment team sought to combine skills and strength in its final XI – blending durability, distribution and adventure.*
It has chosen a 4-3-3 formation comprising four defenders, three midfielders and three attackers. It packed the backline with defensive names that enjoy dominant market shares and high barriers to entry. They feature a medical equipment maker, a listed property firm, a state utility company and an airport.
In midfield the team tried to strike a balance between dependability and creativity, calling up a real estate developer, a private health insurer and an autoparts supplier.
Up front it picked three attack-minded operators with net cash to prosper in high-growth environments. They are a cloud-based software provider, a maker of four-wheel drive accessories and a wealth platform provider.
This is a team that’s built to last. Let’s hope Van Marwijk’s selections similarly stand the test of time. Enjoy the soccer.
GOALKEEPER - Spark New Zealand (ASX:SPK)
Teams need a good communicator in goal, so we picked New Zealand’s dominant telecom services provider. Spark enjoys leading market shares in both fixed line and mobile services for retail and business consumers. It has a rock-solid balance sheet, transparent cashflows and sustainable earnings. This enables it to deliver steady returns and dividends to fend off the ups and downs of economic cycles. A battle-hardened performer, Spark has prospered amid intense competition following an industry overhaul that saw the structural separation of telecom networks and infrastructure. The management has forged a disruptive mind-set to break up opposition attacks. A secure shot-stopper with total command of its area.
LEFT BACK - Fisher & Paykel Healthcare (ASX:FPH)
Full-backs need to be versatile, balancing sound defence with expansive ambition. This medical equipment manufacturer fits the bill. Its core products aid breathing conditions for use in both hospitals and at home and are sold worldwide, dominating this niche area. That gives it a recurring and defensive earnings profile of consumables leveraged to structural global health needs. Its creative side comes out through product innovation, investing in research and development and protecting the intellectual property of its products to ensure consistent revenue growth. A dynamic competitor that has proved itself on the world stage.
CENTRE BACK - Viva Energy REIT (ASX:VVR)
Dependable distribution is key in the heart of any defence, so we called up a listed real estate company with a secure income stream. With its portfolio of strategically located service stations across Australia, this REIT will play in the right areas of the pitch. It rents out freehold units with an average lease expiry of 13 years, ensuring a strong earnings base. Operational risks and costs are borne by quality tenants with strong credit profiles, including supermarket chain Coles. Limited capital expenditure and a low management expense ratio, backed by rental renewals rising at 3% a year, mean the REIT retains cash to distribute a yield of about 6%. A stable presence at the back.
CENTRE BACK - Ausnet Services (ASX:AST)
The backbone of Victoria State’s power networks is another strong distributor. This electricity and gas utility company enjoys a natural monopoly, fortifying its defensive positioning amid high barriers to entry for competitors. Recurring earnings, stable cash flow and healthy credit metrics underpin its financial solidity, enabling it to deliver a high dividend yield. As an energy transmission and distribution company it provides a stable, regulated return. A resilient performer that makes the most of its assets.
RIGHT BACK - Auckland International Airport (ASX:AIA)
We have picked a flier on the right flank with a diverse skillset and confidence on the ball borne of its quasi-monopoly status. The company owns and operates the dominant airport in New Zealand’s biggest city, comprising domestic and international terminals. It handles more than 70% of visitors to the country and enjoys strong volumes leveraged to the nation’s population and tourism growth. Commercial facilities such as airfreight operations, car parking, a hotel, and industrial and commercial real estate generate spin-off revenues to bolster its balance sheet. While it is going through a big capital investment phase, it has retained its A- credit rating. A guaranteed starter with no rivals for the shirt.
LEFT MIDFIELD - Cedar Woods (ASX:CWP)
We wanted a creative force to operate on the left of midfield, and this property developer exposed to the cyclically depressed Western Australia market is the perfect fit. It takes a prudent approach to land purchases by focusing on investing through the cycle and has a collection of undervalued assets, where the potential for upside is pronounced. It buys land, subdivides it and adds value by constructing affordable properties itself or contracting external builders. Its balance sheet is strong and its asset base is worth significantly more than carrying value. A smart playmaker with an eye for a gap and the imagination to exploit it.
CENTRE MIDFIELD - NIB Holdings (ASX:NHF)
The best teams have a fulcrum to smooth the transition from defence to attack. NIB Holdings is well suited to the role. It provides low-cost private health insurance to customers across Australia and New Zealand. While this is a fiercely competitive field, aging populations and recognition from authorities that it delivers an essential service underpin long-term structural growth. Defensive earnings and strong margins have enabled NIB to deliver consistent returns on equity. It also has a creative streak. It was the first to segment products to allow customers to pick and choose and it has forged successful partnerships such as with Qantas, which white-labels its policies. With all creative players though you need to be aware of the limitations, and in the case the limit is government imposed in the form of a potential 2% cap on premium rate rises which may have a short term impact on margins. An effective link player not afraid to venture up field
RIGHT MIDFIELD - Bapcor (ASX:BAP)
Clarity of purpose differentiates the best players, giving them a competitive edge. That lies behind our selection of Bapcor. It started life as an autoparts supplier to the trade industry with a focus on customer service, promising delivery within an hour. It has built a nationwide network and expanded into retail and wholesale markets, testament to its clear growth strategy. The trade segment is more stable and continues to power its earnings, while speed to market has kept ecommerce disruption at bay so far. With an eye on Australian capacity constraints it is rolling out a measured Asian expansion plan. A nuts and bolts player with excellent ground coverage.
LEFT WING - Xero (ASX:XRO)
Wingers should be fast and fearless, and that’s precisely what Xero is. It provides accounting software for small and medium-sized enterprises that is entirely cloud-based, outmanoeuvring slower incumbents whose software solutions remain server-based. It has invested heavily on software development, with its intellectual property driving consistent revenue growth of 30-40%. It has boldly targeted the US market, the world’s largest, and while cloud adoption for accounting software remains a work in progress, we applaud its aggression. We are drawn to the growth potential of the global eco-system it has created, which incentivises customers to stay on the inside. A quick-witted attacker able to exploit space in the channels.
STRIKER - ARB Corporation (ASX:ARB)
Our striker brings a winners’ mentality, with the strength to hold off rivals and the execution to take the chances that come its way. The firm makes and distributes accessories for four-wheel drive cars and trucks. It has a strong market share in Australia and has been successful at exporting overseas in a highly competitive market. It has had to be innovative to respond to new product launches and has invested strongly in research and intellectual property, giving it a pipeline of new products to meet its growth objectives. It is expanding its low-cost manufacturing facilities and is constantly looking for new markets to grow its business. A natural finisher with a predator’s instinct.
RIGHT WING - Netwealth (ASX:NWL)
On the right of attack we wanted a speed merchant capable of outwitting big defenders, so we called up Netwealth. It uses cutting-edge technology to run a platform holding investments for independent financial advisers and individuals. It has carved out a niche in a market dominated by large banks amid a structural shift towards independent advice. While its industry share is only 2% now, it is capturing about 20% of net new flows. It has no net debt, strong cashflows, with a clear trajectory of future flows given its industry leading product and service. It pumps money into research to capitalise on multiple growth avenues and is well positioned for the way the game is changing. A nimble competitor with sound technical skills.
*All of the companies listed above are holdings of Aberdeen Standard Investments.
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Robert joined Aberdeen in 1997 and is Head of Australian Equities. He was previously CEO and Head of Investments for Aberdeen Thailand, where he established the company's successful investment management business.