Talking Stocks – Part 2 with Senior Investment Analyst Anna Milne and Investment Analyst Hailey Kim, hosted by Camilla Cox.



Camilla: Hello and welcome. My name is Camilla Cox. I’m a Senior Corporate Affairs Advisor here at Wilson Asset Management, and today I will be chatting large caps with Anna and Hailey from the WAM Leaders (ASX: WLE) team. Anna, we’ll start with you. QBE (ASX: QBE) just came out with that solid quarterly result, where do they sit with you?

Anna: QBE is a global general insurer. It’s very easy to discard it as an investor, as being too big and too complex. It operates across every continent and every business line. However, management has done a really good job at simplifying the business, optimising the business, and really turning things around. But the journey is not over yet and they haven’t quite conquered the North America strategy and we think this is the next leg of growth for QBE. We’re very confident in management’s ability. The market environment remains very conducive to this growth and overall you are able to pick it up at the moment at quite a discounted valuation. We see earnings growth, we see the valuation, and for us it just seems like a sensible holding in the fund.

Camilla: Hailey, the China wine tariff was recently removed. What does that mean for Treasury Wine Estates (ASX: TWE)?

Hailey: The wine tariff that was imposed on Australian wine going to China was recently lifted and that’s a great news for companies like Treasury Wine Estates. Treasury Wine Estates is the largest listed global beverage company, and they have Australia’s most iconic wine brands like Penfolds. That will allow the company to reenter into China, which used to be the company’s largest end market. Reentering into China will be a multi-year journey, but near term it creates a bit of a demand and supply imbalance, which means it will allow the company to take further price rises and also expand their margins. Touching on US Treasury Wines, they recently acquired a premium wine company called DW Vineyards. That also allows the company to pivot more towards luxury wine, which has proven to be a lot more resilient throughout economic cycles. Putting that all together, we think the valuation of 18x, which is three to four times below the historical multiples, is quite a deep discount and it should start to see some rerating as the market gains a bit of confidence around the recently acquired business and reenters into the Chinese market.

Camilla: Fantastic. And at our recent roadshow, the team were promoting Telstra (ASX: TLS) as an AI beneficiary. What’s the outlook for the company in the near term?

Anna: Telstra is one of those less thought of AI beneficiaries and the reason for that is connectivity. There is no point in having the data and having the artificial intelligence if you don’t have the infrastructure to connect data centers with the likes of ourselves and businesses. That’s not really what I wanted to focus on today. When we think about Telstra, it did take a bit of a hit in February, and that’s really because its enterprise division has been doing quite poorly in hindsight, that makes sense. The economic environment is tougher and this is really now an opportunity for Telstra to re-look at that entire business division and cut costs. So we are looking forward to an update on that. But with Telstra, you are at risk of not seeing the forest for the trees and 70% of their earnings come from the mobile division and the mobile division is in the best place it’s been in years. Prices are increasing, subscribers are increasing and the industry is rational. We see the current share price as an opportunity to enter one of the best businesses in Australia at a discount.

Camilla: Hailey, Woolworths (ASX: WOW) are always in the news lately. They’re having a bit of a tough time. Are you positive on them?

Hailey: Yes, we are. They are the largest supermarket in Australia and they also are in department stores like Big W and also supermarkets in New Zealand as well. Like you said, they’ve been going through some tough times from regulatory environments to cost inflation and also some operational hiccups as well. But fundamentally within the underlying business is very solid. Woolworths have invested in their tech and media capabilities well ahead of time, which we think will set them apart in the years to come. On the share price, we think it’ll continue to be volatile in the next couple of months, but when we think about the second half of this calendar year, we think the company will be able to demonstrate the fact that they’ve regained the sales momentum and also market share. We have started to see consumers starting to cook and eat more at home, which is a lot more of a household budget friendly option as opposed to dining out. So that’s also positive for the supermarket industry as well. A $30 share price and 18x is a very rare opportunity where you can pick up a quality company at a deep discount.

Camilla: Anna, what role does Stockland (ASX: SGP) have to play in Australia’s housing crisis?

Anna: Stockland is a real estate trust listed here in Australia and they have a passive business where they collect rent on commercial properties such as logistics, retail workplace, but they’re best known for their active business and that is their residential business. After completing the Lendlease communities purchase, they’ll have over 100,000 lots in their pipeline, majority of which will be activated in the coming years. And this makes them one of the largest landholders in Australia. They certainly are a very big voice when it comes to reform around our housing market, but there is no simple solution. It requires a coordinated effort from all levels of government, from industry bodies, from corporates, but when you zoom out, there are very strong tailwinds for Stockland. Supply is limited and demand is strong and it is growing, so any policy action will have a benefit for Stockland.

Camilla: Hailey, can you tell us a bit more about WiseTech Global (ASX: WTC)?

Hailey: WiseTech is the largest global leader in logistics software. Their software capabilities span across freight forwarding customs compliance as well as land site logistics and warehousing. This software has proven to provide their freight forwarders and third party logistic provider customers with efficiency gains as well as critical visibility to their businesses. WiseTech is definitely not cheap, but we think there are multiple growth drivers that still make WiseTech very attractive for us. That includes things like a very strong pricing power, given their unique software platform and they’re still quite underpenetrated with the existing customers and also have a significant runway of addressable market in the broader logistics space, which is going through a bit of a digital transformation. Putting that all together, we think they can deliver sustained 30% plus revenue growth and also return back to 50% EBITDA margin in the medium term.

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