by Joanne Tran
Oscar Oberg is the lead portfolio manager of Wilson Asset Management’s Capital Fund. The Sydney-based firm oversees over $5 billion in assets.
What are some recent changes you have made to the fund?
This time last year we were heavily invested in the retail sector, believing analysts were too pessimistic on earnings expectations. For these reasons, we saw the potential for earnings upgrades from a number of companies in a tougher economic environment.
So, we bought into Harvey Norman and Nick Scali in May 2023 and increased our positions in Lovisa, Temple and Webster and Premier Investments. This strategy paid off well throughout the 2024 financial year, with retail being our best performing sector.
As interest rate expectations were lowered from December 2023, the sector surged through reporting season, allowing us to take profits and reduce our exposure to the sector in February and March 2024.
As interest rate expectations have risen in recent months, the sector has performed poorly, and we are again seeing an opportunity to increase our exposure, with expectations in the sector very low.
The fund has a position in software company Iress even as the stock has slumped more than 20 per cent in the past year. Why is that?
We were lucky enough to visit the UK business in the last couple of weeks and believe the management team has done a good job in stabilising the business, which has had numerous issues in the past few years, setting the business up for growth. We anticipate further divestments and see growth potential in the core Australian business of Xplan, suggesting possible earnings upgrades at the 2024 full-year result.
The recent decline in the share price was primarily due to a cyber issue and whilst a negative, we believe that all Australian companies are facing these issues which will be resolved in time.
Which stock in the fund do you think is most undervalued by the market and why?
G8 Education is Australia’s largest childcare operator with over 400 centres. Historically, it has struggled with negative earnings per share revisions and debt issues over the last decade, which culminated in a capital raising in 2020 through COVID. Our interest was sparked last year after the appointment of G8’s new chief executive from Big W, Pejman Okhovat.
Okhovat’s strategy is relatively straightforward: boost occupancy, stabilise costs, and divest underperforming centres. With G8 having a very strong balance sheet, we also think the business could easily buy back 5 to 10 per cent of the shares on issue.
Putting this altogether, we think this strategy can allow G8 to achieve 10 to 15 per cent organic earnings per share growth each year over the next five years. G8’s valuation of 12 times on a 12-month forward price to earnings multiple is cheap, and we think this strong level of organic growth can allow the share price to rerate higher. We see 50 per cent upside in the share price in the next 12 to 24 months, and for these reasons G8 is a large weighting in the portfolio.
What’s your view on the current economic conditions?
Conditions are quite patchy, especially for small-cap companies. This financial year represents the third year in a row that small caps will underperform the Australian market. We do think that the tide will turn as soon as we see interest rates decline, and we saw an example of this from December 2023 to March 2024 where small caps had a great period.
To be bullish on small caps, you need to be bullish on the consumer because around 25 per cent to 30 per cent of the small-cap market is related to the consumer sector such as travel, retail, building materials and media. These sectors have been very tough over the last three years, with valuations seemingly getting cheaper despite most companies having very strong balance sheets. When the tide turns back to these companies, it turns hard, so investors need to be prepared earlier so they don’t miss out.
What’s your favourite local bar/restaurant, and what’s your go-to order?
My wife recently took me to Raw Bar in Bondi for a lunch for my 40th birthday. So, I’d say that’s probably up there with one of my favourite places.
Any podcasts you’d recommend?
I’m more of a traditionalist and read a heap of books. I just read Money Men: A Hot Startup, A Billion Dollar Fraud, A Fight for the Truth. It’s about Wirecard, which was a payments company that failed through COVID.
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