Two big themes from the WAM portfolio

Continued growth in superannuation

Link Administration (LNK)

70% market share in (outsourced) super administration. Major clients include many of Australia’s largest industry funds, such as REST and AustralianSuper. If ACCC approves the merger with Pillar administration, Link will hold a dominant market position.

Margins have been depressed recently due to acquisitions. As the begin to realise the synergies in the acquisitions, margins should begin to improve. 

Class  (CL1)

A high-quality company that makes software for accountants for SMSFs. Provides direct leverage to SMSFs but "looks quite expensive." WAM built their position at a lower price and have taken some profits recently.

Cashless society

Afterpay (AFY)

This company offers ‘online lay buy’ - get the product now, pay it over the next few months. "Massive growth" from online shopping - retailers saw 40-50% increase in online sales from Afterpay.

The company needs to raise more capital to grow faster, all their cash being soaked up as they grow. Before lending to them, banks are waiting for some history on their book so they can get an idea of bad debt levels. 

"Small to mid-cap space still looks expensive."

UPDATE - This morning, on 24/11, AFY announced a new banking deal with NAB worth $20m.

Three stocks from WAM's top 10 holdings

Eclipx Group (ECX)

WAM knows management well - former executive suite from Flexigroup: "We've had a very good history with those guys, and they've made us a lot of money."

The business was taken over from private equity holders who ‘wrote a lot of business.’ The majority of profit is earned in years three and four in leasing, so Exclipx should see a significant pickup as the leases mature. WAM are expecting double-digit growth in coming years, and they expect to see big earnings upgrades.

Eclipx has the lowest finance costs in the industry – it “ticks a lot of boxes for us."

Orora (ORA)

The business was spun out of Amcor, and much like Amcor, management always tells you what's going on in the business.

WAM expects ORA to achieve double-digit growth through acquisitions, 2-3 acquisitions in the US in the next 12 months.

This is a very defensive business – it managed to grow earnings through the GFC.

ALS (ALQ)

ALS does testing and sampling for mining companies. The upside here comes from a revival in mining exploration.

China implemented the biggest stimulus the world has ever seen at the start of this year; this is why commodities are going up.

The stock has a high PE ratio, but earnings will catch up over the next 12-18 months as volumes starting to pick up.

Timing will be important – this is a trading position, not a long-term holding. They’ll be looking to exit before the unwinding of the China stimulus starts to bite.

See pages 28-31 of the attached presentation for the relevant section: (VIEW LINK)