Rudi’s View: Ansell, Transurban And Mantra

This story features ANSELL LIMITED, and other companies. For more info SHARE ANALYSIS: ANN

In this week's Weekly Insights (published in two separate parts):

–Be Mindful Of The Aussie Twist
–Resources Stocks: Follow The Money?
-Conviction Calls: Morgans, CS, UBS And Citi
-Rudi On BoardRoomRadio (Updated)
-Hotel Operators: A Tale Of Two
-2016 – L'Année Extraordinaire
-All-Weather Model Portfolio
-Rudi On TV
-Rudi On Tour

[Note the non-highlighted items appeared in part one on the website on Wednesday]

Conviction Calls: Morgans, CS, UBS And Citi

By Rudi Filapek-Vandyck, Editor FNArena

There is a healthy dose of irony in the fact that healthcare analysts at stockbroker Morgans have now made Ansell ((ANN)) their most preferred stock for the year ahead. Ansell hasn't been a healthcare stock for many years now as clients for the company's gloves and other protective products spread out over the globe and into new sectors like the oil and gas industry.

There is even a fair argument to be made that now the sexual wellness operations have been sold, Ansell is even less healthcare than it was before. Although, is preventing babies really a form of healthcare? I'll leave that thought with you for the time being.

Following the divestment of condoms and lubricants and the like, the company is merging its "single use" operations with the "medical" business unit and this should split the group in two units of similar size, Industrial and Healthcare. This debate can thus remain undecided for much longer.

For what it's worth: I think investors best consider Ansell an industrial conglomerate a la Amcor, servicing supermarkets, drilling platforms, military forces and hospitals across many countries, predominantly across Europe and North America, with multiple currencies to account for, as well as commodity input prices.

The current restructuring includes cost cutting and Morgans, clearly, sees strong growth for the three years ahead at a relatively cheap valuation. Not everyone agrees though, see Stock Analysis on the website.

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Share market strategists at Credit Suisse have added APA Group ((APA)), Graincorp ((GNC)) and Insurance Australia Group ((IAG)) to their list of Top Picks for Australia. ALS Ltd ((ALQ)) and Brambles ((BXB)) have been removed.

Note Credit Suisse incorporates both Short (negative) as well as Long (positive) ideas into the Top Picks list. APA Group was added as a short, alongside IDP Education ((IEL)).

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Market strategists at UBS note how small cap stocks, as a group, have started to outperform the large caps, which are facing a number of headwinds, including the stronger-for-longer Aussie dollar. However, UBS doesn't think the domestic economy is strong enough to favour small cap companies in general.

Hence their advice to investors: you'll have to be choosy.

On the basis of the August reporting season, UBS analysts are pointing into the direction of AMA Group ((AMA)), Autosports Group ((ASG)), Bapcor ((BAP)), Infomedia ((IFM)), G8 Education ((GEM)), NextDC ((NXT)), Premier Investments ((PMV)), Tassal Group ((TGR)) and Tox Free Solutions ((TOX)).

UBS has only one key Sell call: Ardent Leisure ((AAD)).

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Last week I wrote about the diverging dynamics between a deflating bubble in the building of high density units and a significant pick-up in governments' spending on infrastructure throughout Australia. See "Oz Construction Cycle: The Impact Is Now", 18th September 2017.

Analysts at Citi have since released an in-depth assessment of what it means for investors in the share market. Their underlying thesis is similar to the broad themes I highlighted last week with the emphasis on the conclusion that infrastructure cannot fully compensate for the loss of momentum in private dwellings, plus spending by governments is poised to peak inside the two years ahead.

Again, there won't be a fall-of-cliff experience next, but the strong upward momentum from recent years cannot go on indefinitely either.

On Citi's assessment, Transurban ((TCL)) is best positioned to benefit the most, either from a strong pipeline of growth opportunities coming its way, or because the development of infrastructure projects like Moorebank IMEX terminal and the second airport at Badgerys Creek will benefit the company's existing network in Sydney.

As transport via train is poised to become more important, Citi points at Qube ((QUB)) as potentially the largest beneficiary of this future development. The company is developing a new intermodal terminal at Moorebank.

In terms of contractors set to benefit from increased government spending on domestic infrastructure; Citi highlights both Cimic ((CIM)) and Lend Lease ((LLC)). The analysts are not so enthusiastic about Boral ((BLD)) and Adelaide Brighton ((ABC)) with share prices already fully priced, while future benefits are likely to be countered by rising energy costs.

Note to paying subscribers: updates on Conviction Calls have been a regular feature in my Weekly Insights stories since early February this year, with only a rare exception. For past updates: see Rudi's Views on the FNArena website.

Rudi On BoardRoomRadio (Updated)

Audio interview from Tuesday (not to be confused with last week's):

https://boardroom.media/broadcast/?eid=59c9c28543412343aeab2905

Hotel Operators: A Tale Of Two

Analysts at Citi were the first to highlight the risks to Australian hotel operators from AirBNB and other competitors from the emerging global sharing economy, as well as from online travel operators, at a time when the local share market remained in awe with growth potential for freshly listed Mantra Group ((MTR)).

That has changed quite dramatically since.

Those same Citi analysts recently published an update on the theme and things are not looking prettier from the viewpoint of the global hotel operators. Citi doesn't think their loyalty programs will prevent AirBNB and the OTAs (read: online travel operators) to further encroach upon the hotel owners' domain.

The analysts believe recent data from the US provide the first signals revenue per available room (RevPAR in industry lingo) is starting to be impacted. There is also the threat industry cycles might shorten while hotels won't enjoy the same spoils during peak times as they did in the past.

In Sydney and Melbourne, note the analysts, occupancy at AirBNB listings is still circa -30% lower than for hotel operators, suggesting there remains plenty of potential for catch-up.

In terms of the local share market, Citi is happy to retain a Buy rating for Mantra, because the valuation is now much lower (-28% discount versus offshore peers) and there seems to be potential for upside surprise from the Art Series integration, as well as from the Melbourne operations.

Event Hospitality and Management ((EVT)), however, retains a Sell rating. Not only remains Citi concerned about its hotel assets, there are also "material risks" faced by the company's cinema business in Australia. Citi believes these risks are not likely to be overcome in the short term.

2016 – L'Année Extraordinaire

It was quite the exceptional year, 2016, and I did grab the opportunity to write down my observations and offer investors today the opportunity to look back, relive the moments and draw some hard conclusions about investing in the world today.

If you are a paid subscriber to FNArena, and you still haven't downloaded your copy, all you have to do is visit the website, look up "Special Reports" and download your very own copy of "Who's Afraid Of The Big Bad Bear. Chronicles of 2016, A Veritable Year Extraordinaire" (in PDF).

For all others who still haven't been convinced, eBook copies are for sale on Amazon and many other online channels. You'll have to visit a foreign Amazon website to also find the print book version.
 

All-Weather Model Portfolio

In partnership with Queensland based Vested Equities, FNArena manages an All-Weather Model Portfolio based upon my post-GFC research. The idea is to offer diversification away from banks and resources stocks which are so dominant in Australia, while also providing ongoing real time evidence into the validity of my research into All-Weather Performers.

This All-Weather Model Portfolio is available through Self-Managed Accounts (SMAs) on the Praemium platform. For more info: info@fnarena.com

Rudi On TV

This week my appearances on the Sky Business channel are scheduled as follows:

-Tuesday, 11.15am Skype-link to discuss broker calls
-Wednesday, 8-9pm hosting Your Money, Your Call
-Thursday, noon-2pm
-Friday, 11.15am Skype-link to discuss broker calls

Rudi On Tour

– I will be presenting in Adelaide on November 14th to members of Australian Investors Association and other investors, 7pm inside the Fullarton Community Centre, 411 Fullarton Rd, Fullarton. Title of presentation: Investing In A Slow Growing World – An Update

(This story was written on Monday 25th September, 2017. It was published on the day in the form of an email to paying subscribers at FNArena. This is part two. The first part was published on the website as a separate story on Wednesday. It was first sent out to paying subscribers on Monday).

(Do note that, in line with all my analyses, appearances and presentations, all of the above names and calculations are provided for educational purposes only. Investors should always consult with their licensed investment advisor first, before making any decisions. All views are mine and not by association FNArena's – see disclaimer on the website.

In addition, since FNArena runs a Model Portfolio based upon my research on All-Weather Performers it is more than likely that stocks mentioned are included in this Model Portfolio. For all questions about this: info@fnarena.com or via the direct messaging system on the website).

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BONUS PUBLICATIONS FOR FNARENA SUBSCRIBERS

Paid subscribers to FNArena (6 and 12 mnths) receive several bonus publications, at no extra cost, including:

– The AUD and the Australian Share Market (which stocks benefit from a weaker AUD, and which ones don't?)
– Make Risk Your Friend. Finding All-Weather Performers, January 2013 (The rationale behind investing in stocks that perform irrespective of the overall investment climate)
– Make Risk Your Friend. Finding All-Weather Performers, December 2014 (The follow-up that accounts for an ever changing world and updated stock selection)
– Change. Investing in a Low Growth World. eBook that sells through Amazon and other channels. Tackles the main issues impacting on investment strategies today and the world of tomorrow.
– Who's Afraid Of The Big Bad Bear? eBook and Book (print) available through Amazon and other channels. Your chance to relive 2016, and become a wiser investor along the way.

Subscriptions cost $380 for twelve months or $210 for six and can be purchased here (depending on your status, a subscription to FNArena might be tax deductible): https://www.fnarena.com/index2.cfm?type=dsp_signup

(Do note that, in line with all my analyses, appearances and presentations, all of the above names and calculations are provided for educational purposes only. Investors should always consult with their licensed investment advisor first, before making any decisions.)  

P.S. I – All paying members at FNArena are being reminded they can set an email alert for my Rudi's View stories. Go to My Alerts (top bar of the website) and tick the box in front of 'Rudi's View'. You will receive an email alert every time a new Rudi's View story has been published on the website. 

P.S. II – If you are reading this story through a third party distribution channel and you cannot see charts included, we apologise, but technical limitations are to blame.

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