Rudi’s View: Post February Conviction Calls

This story features CORPORATE TRAVEL MANAGEMENT LIMITED, and other companies. For more info SHARE ANALYSIS: CTD

The company is included in ASX200, ASX300 and ALL-ORDS

By Rudi Filapek-Vandyck, Editor

The February results season did not live up to expectations and share markets have gone into a negative spiral during and since.

As Steve Miller once sang: “Round and round it goes, where it stops, nobody knows”.

The ideal environment, one might conclude, to refresh the strategy and portfolio, while taking some key observations and conclusions from February results on board.

Analysts at Morgan Stanley have yet again communicated their Conviction Calls among ASX-listed smaller cap companies. That selection post-February consists of the following six:

-Corporate Travel Management ((CTD))
-Generation Development ((GDG))
-Dicker Data ((DDR))
-McMillan Shakespeare ((MMS))
-Propel Funeral Partners ((PFP))
-Superloop ((SLC))

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Analysts at Goldman Sachs too have shared their key calls post the season described as “volatile and idiosyncratic”.

Key positive picks:

-Life360 ((360))
-Codan ((CDA))
-Collins Foods ((CKF))

Do note Collins Foods reports on a different cycle and will release FY24 financials in July.

Fast food chain Guzman y Gomez ((GMG)) has been selected as a prime Sell as the analysts cannot reconcile what they believe is an overly ambitious expansion plan with an elevated valuation, on top of overhang from shareholders coming out of escrow in March and August, respectively opening up 13% and 40% of total capital possibly up for sale.

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Portfolio managers at UBS decided to downgrade the local Energy sector to Underweight led by poor earnings results released by the sector in February, as well as an equally poor macro picture overhanging the sector’s outlook.

UBS also highlighted its fundamentals based view for an Underweight allocation to Australian banks was, simply put, vindicated in February. The broker’s model portfolio retains an Overweight allocation to Insurers, TMT (Technology, Media and Telecommunication) and to Industrials.

The local Heathcare is also Underweighted, as are Small Caps.

As far as individual stocks are concerned, UBS’s list of Most Preferred Exposures has witnessed the inclusion of six names:

-BHP Group ((BHP))
-Lifestyle Communities ((LIC))
-Collins Foods ((CKF))
-Medibank Private ((MPL))
-Light & Wonder ((LNW))
-Life360 ((360))

Are no longer on the broker’s Most Preferred list:

-Cleanaway Waste Management ((CWY))
-NextDC ((NXT))
-Rio Tinto ((RIO))
-Santos ((STO))
-Suncorp Group ((SUN))

The switch in preference for BHP over Rio Tinto is due to BHP’s higher quality iron ore operation in the Pilbara, but also because of less risks from tariffs, explains the broker.

UBS’s selection of Least Preferred exposures currently consists of:

-APA Group ((APA))
-Aurizon Holdings ((AZJ))
-ASX Ltd ((ASX))
-Bank of Queensland ((BOQ))
-CommBank ((CBA))
-IDP Education ((IEL))
-JB Hi-Fi ((JBH))
-Reece ((REH))
-Sonic Healthcare ((SHL))

Have been removed from the negative selection:

-Cochlear ((COH))
-National Australia Bank ((NAB))
-Scentre Group ((SCG))

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With February one of the most volatile seasons ever observed, analysts at Morgans believe the observation should act as a reminder to investors it’s best to take an active approach to portfolio management and allocation.

Have been added to Morgans selection of Best Ideas:

-Corporate Travel Management ((CTD))
-DigiCo Infrastructure ((DGT))
-Guzman y Gomez ((GYG))
-Light & Wonder ((LNW))
-Megaport ((MP1))
-Orica ((ORI))

No longer included:

-Camplify Holdings ((CHL))
-NextDC ((NXT))
-PolyNovo ((PNV))
-The Lottery Corp ((TLC))

Morgans’ Best Ideas now comprises of 34 ASX-listed companies, also including the likes of Collins Foods ((CKF)), WH Soul Pattinson ((SOL)), QBE Insurance ((QBE)), ResMed ((RMD)), and WiseTech Global ((WTC)). The full list will be included in next week’s edition.

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Athena Kospetas, research analyst at Ord Minnett has equally drawn some key conclusions from the February results season and reviewed the broker’s most preferred sector exposures.

At its core, the suggestion made to investors is maybe, at least for the time being, preference companies with strong balance sheets, leading market positions and positive earnings momentum.

Those are the key principles that underpin Ord Minnett’s updated sector allocations and preferences.

-Financials; the preference is for Judo Bank ((JDO)) and Macquarie Group ((MQG)) and if you must own one of the Big Four, the preference goes out to ANZ Bank ((ANZ)).

Elsewhere, the preference lays with Insurance Australia Group ((IAG)), as well as with insurance brokers AUB Group ((AUB)) and Steadfast Group ((SDF)), and with Medibank Private ((MPL)).

-Resources; Northern Star ((NST)) has been chosen as a large cap gold exposure, while Vault Minerals ((VAU)) has been selected among smaller caps. BlueScope Steel ((BSL)) is equally viewed positively (tariffs are ultimately a positive, the broker predicts).

-Consumer Stocks; Ord Minnett’s three favourites are Metcash ((MTS)), Coles Group ((COL)), and Aristocrat Leisure ((ALL)).

-Real Estate; Dexus ((DXS)), Vicinity Centres ((VCX)), and Waypoint REIT ((WPR)) are preferred.

-Energy and Utilities; Most preferred are Karoon Gas ((KAR)), Santos ((STO)), APA Group ((APA)) and Origin Energy ((ORG)).

-Healthcare; the three sector favourites are CSL ((CSL)), ResMed ((RMD)), and Regis Healthcare ((REG)).

-Communication Services and IT; Xero ((XRO)), SiteMinder ((SDR)), Telstra ((TLS)), and Aussie Broadband ((ABB)) are the favourites (all for very different reasons).

-Industrials; Ord Minnett favours Brambles ((BXB)), Qube Holdings ((QUB)), and Qantas Airways ((QAN)).

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Jarden publishes a list of High Conviction Calls, dubbed Best Ideas, for investors looking to invest in ASX-listed smaller cap companies. That list, updated post February, now carries 17 Best Ideas.

In order of prospective total shareholder return, the following seven stand above the corn field (in order of return  potential):

-Dicker Data ((DDR))
-GQG Partners ((GQG))
-Qualitas ((QAL))
-SiteMinder ((SDR))
-Universal Store Holdings ((UNI))
-EVT Ltd ((EVT))
-Temple & Webster ((TPW))

Apart from those seven, the following have been selected:

-Genesis Energy ((GNE))
-Harvey Norman ((HVN))
-Integral Diagnostics ((IDX))
-Ingenia Communities ((INA))
-Jumbo Interactive ((JIN))
-Karoon Energy ((KAR))
-Michael Hill ((MHJ))
-Pepper Money ((PPM))
-Superloop ((SLC))
-Vault Minerals ((VAU))

In terms of changes made, all of Nick Scali ((NCK)), Pointsbet Holdings ((PBH)) and Regis Healthcare ((REG)) are no longer selected, while both Dicker Data and Jumbo Interactive have freshly joined.

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Macquarie’s post-February update on Australia’s industrials companies centres around the following statement:

“In an uncertain macro and market context, we are preferring defensive positioning, where growth visibility is above-average.”

Macquarie in particular likes Amcor ((AMC)), Brambles ((BXB)), Cleanaway Waste Management ((CWY)), and James Hardie ((JHX)).

Still not liked remains Fletcher Building ((FBU)).

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UBS’s smaller cap favourites (“Key Picks“) post February are:

-Codan ((CDA))
-Dicker Data ((DDR))
-Hansen Technologies ((HSN))
-Life360 ((360))
-MA Financial Group ((MAF))
-NextDC ((NXT))
-Ridley Corp ((RIC))
-Superloop ((SLC))
-Web Travel Group ((WEB))
-Zip Co ((ZIP))

In addition, the UBS team covering ‘Emerging Companies’ also highlights a positive stance on Corporate Travel Management ((CTD)), Megaport ((MP1)), Imdex ((IMD)), and oOh!media ((OML)). They are cautious regarding ARB Corp ((ARB)).

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A post-season update on financial services by stockbroker Morgans has resulted in the following Key Sector Calls (in order of preference):

-QBE Insurance ((QBE))
-Suncorp Group ((SUN))
-Generation Development ((GDG))
-MA Financial ((MAF))

And while February overall provided a rather mixed bag from the local Healthcare sector, Morgans’ team of sector analysts maintains sector fundamentals are strong and valuations attractive. Risk/reward is seen as pointing to upside.

Morgans’ sector favourites: CSL ((CSL)), ResMed ((RMD)), Avita Medical ((AVH)), and Imricor Medical Systems ((IMR)).

Staying with the Healthcare sector, Jarden analysts were certainly disappointed overall, but equally believe market responses throughout February for the sector were often too punitive and too harsh.

Jarden’s sector favourites are CSL ((CSL)), ResMed ((RMD)), Telix Pharmaceuticals ((TLX)), and among smaller cap companies, Integral Diagnostics ((IDX)) and Regis Healthcare ((REG)).

Back to Morgans where ALS Ltd ((ALQ)) and Monadelphous ((MND)) have been nominated for exposure to contractors.

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See also:

https://fnarena.com/index.php/2025/03/06/rudis-view-to-sell-or-not-to-sell-2/

https://fnarena.com/index.php/2025/02/20/rudis-view-best-ideas-conviction-calls/
 

(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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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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