Rudi’s View: Trump Beneficiaries & TechOne

Rudi's View | 4:22 PM

By Rudi Filapek-Vandyck, Editor

Assuming everything goes to plan, next year's Trump presidency will lead to lower corporate taxes but also to import tariffs.

Wilsons' latest strategy update outlines a few basic principles for Australian investors to take on board.

Lower corporate taxes are a benefit for those companies who both operate in the US and pay taxes in the country. This is not the default setting for all Australian companies, the strategists highlight.

But companies that do generate sales and pay taxes over there include Aristocrat Leisure ((ALL)), James Hardie ((JHX)), Breville Group ((BRG)) and CSL ((CSL)). All are highlighted as being part of Wilsons' Focus Portfolio.

Breville Group, as reported previously, is potentially facing serious headwinds from tariffs but management is already taking pre-emptive measures. It'll be a while before anyone can figure out what exactly the impacts and consequences might be.

James Hardie is often seen as a bond proxy as the shares tend to respond negatively when bond yields spike higher. This remains a risk, Wilsons suggest, as Trump's economic stimulus might inflame inflation and force bond yields to rise.

The new administration's accommodative stance towards energy should benefit both Santos ((STO)) and Worley ((WOR)). The latter's benefit includes the company's largest ever project, CP2 LNG, which is now more likely to be approved and ready to accelerate the company's growth in the subsequent years.

Market worries about CSL's vaccines business to be negatively affected are out of kilter with reality, Wilsons suggests. Either way, vaccines are not crucial for CSL's growth outlook or for Wilsons' investment thesis that revolves around Behring (plasma collection) and higher margins in the years ahead (pretty similar to what I wrote on Monday).

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Part One of this week's Weekly Insights sang the praises of TechnologyOne ((TNE)) but the share market would not be itself if there was no room for opposing views about this company and its future.

Analysts at Morgan Stanley had previously put the company in the boring and slow-growing basket, instead preferring more exiting business models. That assessment has misfired, leading to the team quietly joining the rest of the market, albeit with a price target of $25 only which makes a Neutral rating the highest possible for the time being.

One analyst is still refusing to budge and whoever gets the chance to read Morningstar's recent update be warned: it's like stepping into a parallel universe in which TechOne has nothing to offer but the luck of the Irish and an inexplicable elevated valuation.

Morningstar's fair value assessment has crept up to (wait for it) $15.75, which is almost half today's share price. So no surprise, its view is the shares are egregiously overvalued.

In the world of Morningstar it remains way too early to praise TechOne's progress in the UK as the numbers are based off a small number of new customers only.

And where others see the acquisition of CourseLoop as 100% complimentary to TechOne's product offering, Morningstar takes the view this acquisition proves TechOne's product offering is not good enough and evidence of a lack of a compelling and competitive offering.

It is Morningstar's view the company that has recently been re-rated on confidence of accelerated growth ahead has in fact struggled to find its next leg of growth.

Excuse me?

Yes, says Morningstar, growth has simply been the result of governments spending more post covid and of high inflation feeding through CPI-linked contracts.

And that supposedly successful Saas-Plus offering, that's not more than "mostly an accounting change".

What if Trump's Department of Government Efficiency initiative were to start a global cultural headwind for the likes of TechOne whose main customers are government institutions and departments?

And that, as they say, is what maketh the market.

Extra background: Morningstar's fair value assessment for Goodman Group ((GMG)) is $27 and for Xero ((XRO)) it is $90.

Part One of Weekly Insights this week: https://fnarena.com/index.php/2024/11/27/rudis-view-confidence-in-quality-rewarded/