Wilson Asset Management weekly: China to drive Australian growth, Origin and Superpharma

Chris Stott

Portfolio Manager

The S&P/ASX All Ordinaries Accumulation Index closed relatively flat for the week and finished the first quarter of the financial year up 1%. On Tuesday, the Reserve Bank of Australia (RBA) Assistant Governor (Financial System) Michele Bullock said the central bank will continue to consider the heightened level of household debt in monetary policy decision-making. The RBA is due to meet next Tuesday were we expect it to leave interest rates on hold. We previously highlighted the complexity of the RBA’s path to normalising interest rates.

US President Trump announced a simplified plan to cut corporate taxes on Wednesday, which will see the reduction of the corporate tax rate from 35% to 20% and the elimination of taxation of foreign profits to boost the country’s international competitiveness. The success or failure will closely be watched by business tax reform advocates in Australia and around the world.

In this week’s report we discuss China to drive Australian growth, Origin and Superpharma.

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China to drive Australian growth

Australia’s fortunes are closely tied to our largest trading partner and the world’s second largest economy, China. Currently, consensus forecasts put Chinese economic growth at approximately 7% this calendar year. This bodes well for many ASX-listed companies whose future profitability is contingent on the Middle Kingdom’s continued economic strength. Read more here

Origin burns off debt

On Thursday, Origin Energy (ASX: ORG) announced it had agreed to sell its conventional oil and gas exploration business Lattice Energy to Beach Energy (ASX: BPT) for $1.6 billion. As part of the sale, Origin will receive access to Lattice Energy’s east coast gas production. Origin reiterated its commitment to reduce debt below $7 billion by 30 June 2018, while simplifying the business and improving shareholder returns. Shares in Origin closed up 1% for the week, and are currently up 14% for the calendar year. We own Origin as a research-driven investment in WAM Leaders and Century Australia.

Starpharma aligns with AstraZeneca

On Thursday, pharmaceutical company Starpharma (ASX: SPL) and its partner AstraZeneca unveiled its first partnered product, a blood and solid tumour treatment at the Cancer Research UK conference. We believe Starpharma’s portfolio of products for the pharmaceutical sector is currently undervalued by the market. The company is in a strong position to realise the value of its intellectual property through potential partnerships and further success with its clinical trials. Shares in Starpharma closed up 21% for the week. We own Starpharma as a market-driven investment in WAM Capital and WAM Microcap.

Chris was the Chief Investment Officer of Wilson Asset Management, having joined the company in 2006. He was also the Portfolio Manager responsible for WAM Capital (ASX:WAM), WAM Research (ASX:WAX), WAM Active (ASX:WAA) and WAM MicroCap (ASX:WMI).

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