Small cap and overseas stocks were among the companies chosen as the rising stars of the investment world by some of the country’s top managers at the Future Generation Investment Forum.
Catriona Burns at Wilson Asset Management nominated Sensata Technologies, Philip King picked out Qantas, Domenico Giuliano at Magellan likes Facebook and Google, while Campbell Morgan at Sandon Capital likes Spicers.
Matthew Kidman at Centennial Asset Management set out his reasons for investing in McPherson’s – the firm that owns brands including Lady Jayne, Manicare and Swisspers.
“McPherson’s have had a lot of terrible businesses over the years. They published the Telstra phone book – obviously that wasn’t a sustainable business. They also used to have a lot of households goods that they used to sell to supermarkets before Coles said ‘we’re not going to take your goods anymore,’ which was half their business.” Mr Kidman said.
“But they’ve sold a lot of assets and repositioned the balance sheet so they’ve got about $15 million of debt and they’ve refocused the business on beauty and health.
“They’ve got huge excess capacity in their warehouse in Kingsgrove and what they need to do is make an acquisition to use that excess capacity.
“On today’s valuation I can see it at about $1.80. With an acquisition at the right price I could easily see it pushing up toward $2.”
Next up, Arik Star at Ellerston Capital presented on UK shareholder services firm Equiniti.
“This is a UK-listed company with a billion-dollar market cap. We’ve owned it for two years. Equiniti is like the Computershare of Europe. It’s the largest in share registry services and employee share plans,” he said.
The firm has recently bought the shareholder services division of Wells Fargo, he noted, which operates the third-largest share registry business in the US.
“What you get here is a really solid, strong, dependable business at a discount with huge upside optionality. We think over the next two years it could make more than 50 per cent and you’re carrying a dividend along the way.”
Ryan Reidler at Cooper Investors said Lifestyle Communities was his preferred stock pick.
The firm is in a sweet spot of two emerging trends, being the aging baby boomers and the demand for affordable housing, he asserted.
“It’s a unique self-funding business model, exposure to a long-term structural growth story and generates low-risk, inflation-protected income streams.”
He said he particularly likes the fact that the firm’s co-founder and CEO owns 11.5 per cent of the stock.
“We sleep better at night knowing that he’s got $60 million of his own money invested alongside shareholders,” he said. “We see the share price easily over $7 on a medium-term view. In the meantime we are going to collect a growing fully franked dividend.”
Ben Griffiths at Eley Griffiths Group runs two funds and chose Mastermyne and Freedom Foods as his top picks.
On Mastermyne, he noted that the board and senior management own about 20 per cent of the firm “so they have skin in the game”.
He also pointed out that the firm returned to profit in the first half of 2018 after some tough years for the coal industry.
The business is now able to take advantage of the growing number of new projects in the coal business that are coming online, he said.
“I’m excited that there is about $1 billion of coal mining work that will be up for tender. Mastermyne will be doing their darndest to participate in that work. We have great confidence in its near-term outlook. You won’t always want to own a mining contractor but, right now, we’re in a sweet spot,” he said.
On Freedom Foods, Mr Griffiths highlighted the company’s highly experienced team of managers and the fact that it’s recharged its balance sheet “so can make an acquisition or can support expected growth rates”.
For both firms, the fund manager said: “We weren’t there at the lows, we are relatively new owners, but are sufficiently confident on the outlooks for both groups.”