15 fresh investment ideas from Future Generation
The 2017 Future Generation Investment Forum has been a resounding success. Livewire provided coverage of the event in which 13 of Australia’s leading fund managers all offered at least one of their best stock ideas. Presenting firms include Magellan Financial Group, Tribeca Investment Partners, Wilson Asset Management, Morphic Asset Management, Ellerston Capital and many more. Six ASX-listed small caps were named in the billing, covering sectors including resources, industrials, tech and retail, and even saw Geoff Wilson put forward ‘the new REA’. At the bigger end of the market, we heard why Iluka is far more than a mineral sands play, while Telstra was named as a contrarian play. Global stocks included Apple, which was described as cheap, despite the >$800 billion market cap. An overview of comments on all 15 stocks is below:
Geoff Wilson AO, Wilson Asset Management
Afterpay (ASX:AFY): Market Cap: $197mil, YTD +1.2%
This is the leading provider of ‘lay-by online’. Could be the new REA, and has plenty of REA-like qualities.
Ben Griffiths, Eley Griffiths Group
Noni B Limited (ASX:NBL): Market Cap: $130mil, YTD +21.4%
Noni is a revered woman’s fashion retailer with over 600 stores. The business is going through a metamorphosis as a new ‘toe-cutter’ CEO, Scott Evans, takes an axe to costs through accretive acquisitions, business synergies and supply chain refinements.
Ben Griffiths, Eley Griffiths Group
PWR Holdings (ASX:PWH): Market Cap: $205mil, YTD -17.0%
Queensland based manufacturer of car-cooling systems for high performance vehicles (think F1, NASCAR etc). FY17 was tough due to investment in the business in the year, and wild currency moves. Upside going forward from contract wins, more stable currency, and US aftermarket sales channels.
Sean Fenton, Tribeca Investment Partners
Telstra (ASX:TLS): Market Cap: $52bil, YTD -14.0%
Time for a contrarian stock call: Telstra. Challenges for Telstra are well flagged and include margin pressure from the NBN, growing mobile competition, with the added possibility of a dividend cut. “This is all well known and largely in the price”. Less discussed is the upside from these four points: 1) Even after reduced dividends, this will provide support in a market downturn; 2) Cost out opportunities; 3) NBN payments could be ploughed into buybacks; 4) Mobile network investments should aid margins.
Jack Lowenstein, Morphic Asset Management
Haseko Corporation (TYO:1808), Market Cap: $419bil, YTD +17.2%
“This is one of the cheapest stocks in one of the cheapest markets”. Japan is not the expensive place it was; 2-bedroom apartment in Tokyo is half the cost of an equivalent Sydney apartment. Haseko has 30% share of Tokyo condo building market. PE is just 6 times. Japan's prevailing market belief is that property is in a bubble, even though price growth just 2% per annum since 2010. Taking a view that Japanese property market has further upside, this is a very cheap exposure.
Gabriel Radzyminski, Sandon Capital
Iluka Resources (ASX:ILU): Market Cap: $3.5bil, YTD: +15.0%
Iluka has a royalty stream from BHP’s ‘Mining area C’, which BHP guides to double over next 5-10 years. Royalties are ill understood in the market, and strong value realization could be acheived through a spin off of the asset. Also has a producing mineral sands asset, with mineral sands prices improving.
Gabriel Radzyminski, Sandon Capital
Mineral Deposits (ASX:MDL): Market Cap: $114mil
Good exposure to the improving mineral sands market, through a producing mine in Senegal. Book Value of $272mil is a multiple of its current market cap.
Bill Pridham, Ellerston Capital
Zayo Group (NYSE:ZAYO): Market Cap: $7.6bil, YTD: -3.9%
Mobile data volumes is growing at 53% CAGR (driven in part by popularity in streaming from popular services such as Netflix, Amazon, and Microsoft etc..). Fibre networks assets are ‘the backbone’ of this growth. Assets are expensive and hard to replicate. Zayo has assets that traverse the US. Peers have been acquired on 16-17 times multiple, while Zayo is on 10 times.
Graham Hay, Antipodes Partners
Office Depot (NASDAQ:ODP): Market Cap: $2.7bil, YTD: +14.6%
Retail company dealing in office supplies. Prevailing consensus is that the sector is facing extinction in the face of Amazon, but there could be a few survivors. Office Depot adapted well and now has 65% of sales on line, which price-match Amazon. So the ‘Amazon-factor’ possibly in the price already. Further supply chain rationalisation underway with new management from Lenovo, bringing cut-throat PC industry practices. Trading on just 7 times PE (Local peer, Officemax, being pitched at double this).
Nikki Thomas, Magellan Asset Management
Apple (NASDAQ:AAPL): Market Cap $823bil, YTD +34%
Iphones generate around 75% of Apple revenue. The install base of iphones represents ~500 million customers which enjoys a 90% customer-retention rate. Despite market cap of $800bil, valuation looks cheap once you strip out the net cash, and services, to see that it is trading on just 12 times.
David Prescott, Lanyon Asset Management
PMP Limited (ASX:PMP): Market cap $340mil, YTD -0.7%
The unloved ‘catalogue-printing’ industry is in good shape in Australia following consolidation to produce a stable duopoly (with iGroup and PMP). Industry margins should be more robust with this more constructive back-drop. Despite broader digitisation of advertising, catalogues remain a sticky part of the marketing mix. ‘Never discussed publicly before’, but Lanyon has held stock since it was $0.15c, with stock now at $0.64, and fund expectations of it reaching $1.00; forecasted EV/EBITDA of 3.4 times, and yield of 13.5%.
Chris Dixon, Cooper Investors
DiaSorin SpA (BIT:DIA): Market Cap E3.9bil, YTD +24.4%
DiaSporin is an Italy-based diagnostic assay provider. Sells hardware, and the specific reagents that are required to operator it. Very sticky revenues as buyers of the kits have no options outside of using approved consumables. Growing revenues from new tests, and smaller new versions of hardware. Chris highlighted the passion of management who bought it through a MBO in 2002. Forecasting 90 Euros, versus current price of 70 Euros.
Adrian Warner, Avenir Capital
Nexstar Media (NASDAQ:NXST): Market Cap $2.7bil, YTD -7.8%
Misunderstood media business that is “absolutely gushing cash”, and has delivered 20% pa annual shareholder return over last 10 years. Covers 39% of all US homes. Has forged a new revenue stream through charging recurring fee for content, which is now 45% of its broader revenue stream. Trading on just 5 times free cash flow.
Mike Dyer, Neuberger Berman
Wholefoods Market (NASDAQ:WFM), Market Cap $11.4bil, YTD +18.5%
Wholefoods is the largest natural and organics US supermarket with 464 stores. Neuberger bought it last year at $28. WFM has strong brand, but business had grown too fast and had issues. Neuberger suggested changes (new CFO, Customer base, Unified tech platform, Started to see progress, etc), which were partly implemented. More aggressive activist investors, Jana, bought 8% and have pushed for wider changes. Neuberger expect price of $45 (Versus current $36).
Chris Stott, Wilson Asset Management
Reckon (ASX:RKN), Market Cap $200mil, YTD +5.9%
Reckon is well known as a provider of cloud-based accounting software. However it has a second product, which is completely underappreciated, called APS, which Wilson values at $2.00 (greater than current share price of whole company). Classic ‘Sum of the parts story’, Reckon is an ‘ugly duckling that turns into a swan’.
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