Talking Stocks – WAM Leaders (ASX: WLE)
with Senior Investment Analyst Anna Milne and Investment Analyst Hailey Kim, hosted by Bridget Thelander.
Transcript
Bridget Thelander: Hello and welcome. My name is Bridget Thelander and I am a Corporate Affairs Advisor at Wilson Asset Management and today I’m joined by two members of the WAM Leaders (ASX: WLE) team Anna Milne and Hailey Kim.
Anna and Hailey thanks for joining us and thanks for your time. Today we’re focusing on large-cap stocks so I’ve asked Anna and Hailey to select a couple of companies that they’re watching right now and tell us a bit about them.
Anna, we’ll start with you, Spark New Zealand (ASX: SPK). Can you tell us a bit about what the company does and what your view is going forward?
Anna Milne: We like telcos at the moment. Spark is to New Zealand is what Telstra (ASX: TLS) is to Australians. It’s the leading mobile network, extremely high-quality market leadership. There has been some challenges with Spark, operationally it has been softer than they first expected and there is the possibility of a dividend cut, but the share price is trading at decade lows and when we zoom out this is a high quality business, recurring revenue streams, increasing exposure to data centres and really as we bottom out from an operational perspective, we expect earnings growth to come through as well as valuation upside.
Bridget Thelander: And Hailey, over to you. Has the de-stocking cycle ended for global packaging company Amcor (ASX: AMC)?
Hailey Kim: Yes, mostly is the answer. So you’re exactly right. Amcor has been going through a couple of years of global de-stocking cycles, but now three quarters of the portfolios started to grow again and the rest of the portfolio is expected to turn a corner of the next quarters as well. So Amcor is really well placed to gain market share and expand their margins as the volumes continue to recover and they also continue to optimise their portfolio which all collectively deserve a multiple re-rating from the historical levels of 14 times price-earnings ratio (PE). And we also continue to expect them to make bought-on acquisitions as part of their growth stories. So, going forward, we see a strong opportunity for earnings growth as well as multiple expansion for Amcor.
Bridget Thelander: Anna, spring’s been off to a warm start. Talk us through your view on insurance company Insurance Australia Group (ASX: IAG).
Anna Milne: IAG has been a very strong performer from a share price perspective, but it is more than deserving of this. Fundamentally, things are going very well. The premium cycle is strong, claims inflation is coming off, and there’s been hardly any catastrophe or weather events that will impact their earnings. Strategically, their new re-insurance program just sets them up from a far less volatile earning streams going forward and investors are willing to pay up for this. We’ve been an investor in IAG for a few years now and when we think about the company two years ago to today, it’s completely different. But we don’t think the story’s over yet for IAG, we think there’s more room to run.
Bridget Thelander: Great, thank you Anna. Hailey, Ampol (ASX: ALD), petrol prices are in the news all the time. The share prices suffered a bit recently, it’s now sitting at around $30, so what’s driven this?
Hailey Kim: Yeah, you’re right, Ampol’s share price is down 25% from its highs earlier this year and that’s mainly driven by regional refining margins which is down 50% this year. Almost half of Ampol’s earnings come from its Lytton refinery and refining margin is really hard to predict and forecast and the current weakness might persist for quite some time. The share price does tend to overshoot on these as it did on the upside so we think this is actually a great buying opportunity if you’re willing to look through the current new term volatility especially when there’s a bit of a downside protection from the government support that’s currently in place. The other parts of the business are also growing quite well, including the retail fuel and convenience as well as commercial. They also have capital management as a catalyst in the near term as well.
Bridget Thelander: That’s exciting. Anna, you’ve been liking Sonic Healthcare (ASX: SHL), but this is a non-consensus view. So why are you so confident on the company?
Anna Milne: So Sonic Healthcare is more of a tactical view. It has been on the nose for a number of years for a number of reasons. Both on the revenue and the cost side there have been challenges, but looking at the more high frequency data we think this has turned the pathology market seems to have quite robust volumes in more recent months and the cost pressures have certainly eased from where they were six and 12 months ago. It also comes back to basics looking at how it’s traded versus its nearest pairs being Healius (ASX: HLS), Australian Clinical Labs (ASX: ACL) and Integral Diagnostics (ASX: IDX) for example, they’ve all traded extremely well over the last six months versus Sonic being flat and that is just not justified in our view. So should at the AGM they come out with a reasonably robust trading update, we expect there will be some kind of catch-up trade to come.
Bridget Thelander: Great, okay, one to watch. Hailey, The US Federal Reserve (Fed) cut interest rates last month which was exciting for a lot of people. What does it mean for James Hardie Industries (ASX: JHX)?
Hailey Kim: James Hardie provides fibre cement sidings for houses in the US, so interest rates and also the housing demand are very much the biggest leverage for James Hardie’s performance. So, as you just said the Fed did decide their easing cycle last month, which is positive for the general consumer sentiment, housing demand as well as repair and remodel activity. But we caution though, there’s generally a bit of a lag before we see a meaningful pickup in hardy siding volumes and we think the market expectations currently are a little bit higher than where we see things. So, we are watching very closely from an inflection point because we do like Hardie’s long term story and we think they’ve got a really long runway for growth.
Bridget Thelander: Fantastic. Hailey, Anna, thanks for your insights and thanks for watching.
