Rudi’s View: Infomedia, MNF Group & BHP

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In Part Two of this week’s Weekly Insights:

-Conviction Calls
-FNArena Talks

Conviction Calls

By Rudi Filapek-Vandyck, Editor FNArena

The August reporting season is approaching in Australia and emerging companies specialists at Morgan Stanley have lined up their Conviction Picks for the season, as well as a few candidates best avoided.

Morgan Stanley really, really likes communication/infrastructure company MNF Group ((MNF)), pointing out management has twice reiterated guidance for FY20 and the company’s operations are genuinely enjoying a boost from lockdowns and the global pandemic.

MNF, reports Morgan Stanley, is one of few companies on the ASX for which the analysts feel confident the company will be able to beat pre-virus forecasts in August.

Typical for the year, Morgan Stanley’s second ranked favourite stock equally operates in the technology space with Nitro Software ((NTO)) allowing users to create and share PDF documents, in and outside of the cloud, without paying Adobe for the privilege.

Nitro management too is enjoying a boost since lockdowns and has reiterated guidance as printed in IPO documents.

Favourite number three is Breville Group ((BRG)), which shouldn’t surprise as Morgan Stanley only initiated coverage this week, and it truly was a glowing assessment of Sydney-based manufacturer of home appliances under well-known brands Kambrook, Ronson, Sage, and Breville.

Morgan Stanley is cautious regarding Webjet ((WEB)), G8 Education ((GEM)), and Lovisa Holdings ((LOV)), also noting Lovisa has traditionally not been strong in online sales.

Two stocks received an honourable mention: Pacific Smiles Group ((PSQ)), which could materially surprise if June momentum continues, and 3P Learning ((3PL)) which might transform itself into the come-back kid du jour.

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Quant analysts at Credit Suisse have equally done their homework and lined up potential surprises and disappointments, re-ratings and de-ratings ahead of the August reporting season.

As is standard practice for the quant desk, a lot of mumbo jumbo on the basis of historic and other data is behind the lists of names generated.

Candidates for a potential de-rate in August include Woodside Petroleum ((WPL)), Ampol ((ALD)), Mineral Resources ((MIN)), Fortescue Metals ((FMG)), Fletcher Building ((FBU)), Boral ((BLD)), Qube Holdings ((QUB)), Cleanaway Waste Management ((CWY)), Wesfarmers ((WES)), Breville Group, Coles ((COL)), Woolworths ((WOW)), Fisher & Paykel Healthcare ((FPH)), ResMed ((RMD)), CommBank ((CBA)), Bank of Queensland ((BOQ)), QBE Insurance ((QBE)), Medibank Private ((MPL)), Netwealth ((NWL)), ASX ((ASX)), Spark New Zealand ((SPK)), Telstra ((TLS)), Appen ((APX)), WiseTech Global ((WTC)), Spark Infrastructure ((SKI)), AusNet Services ((AST)), Goodman Group ((GMG)), and Centuria Industrial REIT ((CIP)).

A quick glance throughout that list shows most candidates are trading on a sizeable premium to broader market, or they have been battling battles for quite some time.

Companies seen as potential re-rate candidates in August include Resolute Mining ((RSG)), Northern Star ((NST)), Austal ((ASB)), Tassal Group ((TGR)), United Malt Group ((UMG)), Avita Medical ((AVH)), Clinuvel Pharmaceuticals ((CUV)), Insurance Australia Group ((IAG)), nib Holdings ((NHF)), Omni Bridgeway ((OBL)), TPG Telecom ((TPG)), NextDC ((NXT)), and Charter Hall Long WALE REIT ((CLW)).

For those who are worried about market positioning (either way), the quant team has lined up two additional lists.

Crowded shorts include Downer EDI ((DOW)), Virgin Money UK ((VUK)), Star Entertainment Group ((SGR)), Beach Energy ((BPT)), Spark Infrastructure, Aristocrat Leisure ((ALL)), QBE Insurance, Treasury Wine Estates ((TWE)), Sydney Airport ((SYD)), and AGL Energy ((AGL)).

Crowded longs include Afterpay ((APT)), AMP ((AMP)), Rio Tinto ((RIO)), a2 Milk ((A2M)), Reliance Worldwide ((RWC)), WiseTech Global, Domino’s Pizza ((DMP)), BHP Group ((BHP)), Tabcorp Holdings ((TAH)), and JB Hi-Fi ((JBH)).

The underlying suggestion is that the first group could potentially reverse negative sentiment whereby shorts need to cover and others jump on board, which could put some genuine fireworks underneath the share price.

In terms of the second list, the suggestion is that once everybody is on board, there’s not much left in terms of additional buyers, so any further upside might be limited even in case of a positive surprise.

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One of the advantages of seeing professional investors struggle with market momentum and hard-to-beat benchmarks is that an increasing number feels an urge to communicate more often with media and retail investors.

Local stalwart Ausbil released a Q&A formatted macro outlook with co-founder, executive chairman & chief investment officer, head of equities, Paul Xiradis.

And so we know Ausbil has been increasing its exposure to tech stocks, as well as buying shares in Qantas ((QAN)), Transurban ((TCL)), Ramsay Health Care ((RHC)) and Sonic Healthcare ((SHL)), while maintaining its position in CSL ((CSL)).

The post-pandemic recovery story was further enlarged by a new position in OZ Minerals ((OZL)).

Ausbil still very much likes Goodman Group ((GMG)), plus has added exposure selectively to retailers JB Hi-Fi ((JBH)) and Super Retail ((SUL)).

One key underweight position mentioned is retail real estate.

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UBS strategists responsible for the Model Portfolio in Australia have decided to stay overweight cyclicals and the economic recovery story, but one can sense from reading in between the lines it’s a position that is losing conviction.

Just about every update from the team emphasises it is but a temporary view and investors are warned every single time to keep an eye out for possible turning points.

The Portfolio has now reduced its Overweight exposure to banks.

New additions to the Portfolio include APA Group ((APA)), CSR ((CSR)), Sims ((SGM)), Woolworths and AGL Energy while a rather long queue has been sold, including Breville Group, South32 ((S32)), Premier Investments ((PMV)), Challenger ((CGF)), TechnologyOne ((TNE)), IOOF Holdings ((IFL)), Sonic Healthcare, Fisher & Paykel Healthcare ((FPH)), and Seek ((SEK)).

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Mining analysts at JP Morgan have communicated their sector preferences as BHP Group ((BHP)), Rio Tinto, IGO ((IGO)), St Barbara ((SGM)), and Gold Road Resources ((GOR)).

While analysts at Macquarie express caution towards most gold producers ahead of quarterly production updates and the August reporting season.

Westgold Resources ((WGX)) is singled out as a Top Pick among junior gold stocks, because of its operational leverage.

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A recent update on small caps in Australia by Credit Suisse revealed the analysts are anticipating a volatile year ahead for ASX listed minnows.

Selected favourites for the year ahead are Bapcor ((BAP)), Capitol Health ((CAJ)), Infomedia ((IFM)), Inghams Group ((ING)), Seven Group Holdings ((SVW)), Tassal Group ((TGR)), and Xero ((XRO)).

JP Morgan’s preference continues to be with Corporate Travel Management ((CTD)) while it continues to dislike Collection House ((CLH)).

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The latest update on Wilsons’ Convictions revealed two stocks have been added to the short list in June: ARB Corp ((ARB)) and Whispir ((WSP)).

Both joined Collins Foods ((CKF)), Nuchev ((NUC)), Integral Diagnostics ((IDX)), Telix Pharmaceuticals ((TLX)), and ResMed ((RMD)) who all kept their inclusion on the Conviction List.

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As has become a recent tradition, analysts at Bell Potter have lined up their specific favourites for each segment of the Australian share market for the year ahead.

-Banks & general insurers: Macquarie Group ((MQG)), CommBank ((CBA)), MyState ((MYS));

-Financials: AMP, Janus Henderson ((JHG)), Pendal Group ((PDL)), Perpetual ((PPT)), Afterpay ((APT)), and Life 360 ((360));

-LICs: MFF Capital Investments ((MFF)), Magellan Global Trust ((MGG)), WCM Global Growth ((WQG));

-Agriculture and fast moving consumer goods (FMCG): Inghams Group ((ING)), Elders ((ELD)), and Rural Funds Group ((RFF));

-Technology: Uniti Group ((UWL)), Infomedia, and PWR Holdings ((PWH));

-Discretionary retail & professional services: Temple & Webster ((TPW)), City Chic Collective ((CCX)), and IPH Ltd ((IPH));

-Industrials: Carbon Revolution ((CBR)), Corporate Travel Management, Emeco Holdings ((EHL)), Johns Lyng Group ((JLG)), Mader Group ((MAD)), and Rhipe ((RHP));

-Resources & Energy: Alpha HPA ((A4N)), Byron Energy ((BYE)), Comet Ridge ((COI)), Mincor Resources ((MCR)), Nickel Mines ((NIC)), Pantoro ((PNR)), Regis Resources ((RRL)), Senex Energy ((SXY)), and Westgold Resources;

-Healthcare & Biotech: Mesoblast ((MSB)), Genetic Signature ((GSS)), Opthea ((OPT)), Oncosil Medical ((OSL)), Avita Medical ((AVH)), and Volpara Health Technologies ((VHT));

-Emerging Companies: Pointsbet ((PBH)) and Resimac ((RMC)).

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In a similar fashion to Bell Potter, analysts at Canaccord have equally selected their Best Investment Ideas, divided over Large caps, mid-caps and small cap stocks, but we’ll simply stick to sectors below.

Cyclicals

-Resources: BHP Group, Alumina Ltd ((AWC)), OZ Minerals, Iluka Resources ((ILU)), and Saracen Minerals ((SAR));

-Oil&Gas: Woodside Petroleum and Origin Energy ((ORG));

-Mining services: Perenti Global ((PRN));

-Banks: National Australia Bank ((NAB)) and Westpac ((WBC));

-Financials: Macquarie Group;

-Materials: Amcor ((AMC)), Boral ((BLD)) and Reliance Worldwide ((RWC));

-Consumer Discretionary: City Chic Collective ((CCX)) and Redbubble ((RBL));

Sensitives

-Industrials: Brambles ((BXB)) and Cleanaway Waste Management;

-Communication Services: Nine Entertainment ((NEC)), Macquarie Telecom ((MAQ)) and MNF Group;

-Info Tech: REA Group ((REA)) and NextDC ((NXT));

-Infrastructure: Transurban ((TCL)) and Atlas Arteria ((ALX));

-Utilities: AGL Energy ((AGL))

Defensives

-Consumer Staples: Treasury Wine Estates ((TWE));

-Wagering and Gaming: Aristocrat Leisure ((ALL)), Tabcorp Holdings ((TAH)) and Betmakers Technology Group ((BET));

-Healthcare: CSL, Sonic Healthcare ((SHL)) and Ansell ((ANN));

Listed Property

AREITs: Scentre Group ((SCG)), Stockland ((SGP)), Goodman Group and Abacus Property Group ((ABP)).

FNArena Talks

-One of my recent interviews is now available as a podcast via Spark Your F.I.R.E. buff.ly/3j0A1Gm

-Webinars in September: CPA SMSF Discussion Group (16^th) and Australian Shareholders Association (ASA) on 22nd

(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.)  

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