US carmaker General Motors has been singled out by one Australian fund manager as a stock worth investing in even though, as he freely admits, it is one of the most unloved companies in the world.
Adrian Warner, chief investment officer at Avenir Capital, chose General Motors for his stock pick at the Future Generation Investment forum in Sydney on Thursday, noting it was “one of the cheapest companies in the world trading anywhere today”.
The fund manager said the company was trading on a price-to-earnings ratio of 5.5 times but he believed that multiple was “way too cheap” for three reasons.
GM’s core automotive business was “misunderstood”, and was a much better quality business than it was perceived to be, he said.
At the same time, there had been “dramatic cultural changes” at the company that are “are not fully appreciated”, he said. Finally, “we think that GM is quite well positioned in terms of the future of mobility”.
Mr Warner made his presentation at a semi-annual gathering that brings together some of the country’s high-profile fund managers to showcase their best investment ideas during a five-minute pitch.
Sydney Swans co-captain Josh Kennedy was a surprise addition to the forum, with the AFL player selecting both of the Future Generation investment companies as his picks.
Veteran investor Geoff Wilson doubled down on department store operator Myer, saying that he could easily see the retailer’s share price surging to $1.
He said the department store’s new chief executive, John King, had taken significant costs out of the business. “We think that over the next few years, earnings could easily double,” Mr Wilson said.
Retailers prove popular
Retailers were a popular choice for the forum fund managers, with Ronni Chalmers at CBG Asset Management taking the opportunity to present the case for high-growth fashion jewellery chain Lovisa.
The company was growing very rapidly, he said, with the number of stores surging to 360 from 220 at listing in 2014. Mr Chalmers pointed out that Lovisa’s chairman, Brett Blundy, was also its largest shareholder with a 41 per cent stake in the group. Still, the stock could be volatile, he acknowledged.
Martin Hickson at Wilson Asset Management said he had just bought 4 per cent of Think Childcare, adding “we think it’s one of the best micro-caps in the market”.
“The Australian childcare industry is at an inflection point” and is about to enter a period of reducing supply and increasing demand, he said.
The fund manager said he thought banks were reducing the amount they were willing to lend to childcare developers, and expected new childcare supply to fall by between 10 and 15 per cent. “This will make it easier for existing centres to fill their excess capacity,” he said.
Justin Braitling of Watermark offered gift card and reloadable debit card firm EML as his investment idea. “We see exciting growth ahead for EML in Europe,” he said. “We value the company at $3 a share. It’s currently trading at around $2.35.”
Tribeca Investment Partners portfolio manager Jun Bei Liu gave Bravura Solutions as her investment idea for the forum. The fund manager said the barriers to entry in Bravura’s segment of the software market were high and she liked its high level of recurring revenue. “It’s not cheap but it’s not a single-year investment case,” she said.
Alison Savas at Antipodes chose German software group SAP as her pick for the forum, saying the stock was cheap relative to its history.
Cooper Investors Qiao Ma chose Chinese gaming firm Huya as her pick, noting the huge gaming market in China.