Register For Our Mailing List

Register to receive our free weekly newsletter including editorials.

Home / 181

Best ideas from David Prescott, Peter Cooper, Madeleine Beaumont, Patrick Hodgens

These are presentations from the Sohn Hearts & Minds Investment Leaders Conference in Sydney on 11 November 2016. Each high-profile portfolio manager is given 10 minutes to explain their investing strategies and include one major investible insight.

David Prescott

David is a Founding Director of Lanyon Asset Management, a value-oriented equity fund manager established in 2009. Prior to founding Lanyon, David was previously Head of Equities at institutional fund manager, CP2 (formerly Capital Partners).

Best idea: Cross Harbour (Holdings), listed in Hong Kong

Low interest rates and central bank activity have encouraged buyers to push some yield assets, such as REITS, utilities and infrastructure, to absurdly high prices. But opportunities remain.

Toll roads are regulated monopolies, with growing and predictable cash flows, little incremental costs in later stages and contract terms specified in long dated contracts. Accelerating increases in toll prices and increased use lead to predictable revenue increases. In final years of a concession, toll roads often make massive profits, but most prices have been pushed too high.

Cross Harbour (Holdings) is listed in Hong Kong. Only three tunnels cross the harbour to Kowloon, and this concession will produce massive free cash flows until 2023. The current share price is $10.70 but the valuation of the parts is estimated at $19.23, even with a testing discount rate. It includes $6.14 of cash and has a large margin for safety. It’s off the radar of many large investors as it’s a small cap. The Chairman rarely speaks to investors, and many accuse it of having a lazy balance sheet.

We believe there are catalysts to realising value such that it’s not a value trap, especially a potential special dividend that will to lead to a rerating.

Peter Cooper

Peter founded Cooper Investors in 2001. He started in the industry in 1987 as a specialist industry analyst, and by 1993, Peter ran the Australian equity portfolios for BNP and for 7 years was with Merrill Lynch as a Managing Director. Over 5 years the specialist equity portfolio was number 1 in the Intech Australian Equity Survey.

Best idea: Brinks

Brinks is a major turnaround story. It is a transport company with a focus on security and carrying cash and bullion. It is listed in the US in an industry growing at 10% pa. It is the largest in the industry but least profitable despite its US$750 million turnover.

There has been a lost decade of board incompetence and poor management, with poor technology and insufficient investment in infrastructure. Past CEOs have been either conservative or without industry experience, leading to mismanagement of the business. Turnarounds are risky because employees and some customers resist, but execution risk here is considered low. As well as a new CEO, there are new directors, experienced in the transport industry.

Cultural change needs an external influence, and new CEO Doug Pertz specialises in turnarounds. He previously managed Recall as part of Brambles, which is similar to Brinks with its warehouses and trucks. There is much low-hanging fruit, with hundreds of things that can be done to improve productivity, such as rationalising its 220 depots.

There is great potential to leverage the existing client base because they do not spend enough on marketing. At the moment, 60% of profit comes from emerging markets, a sector which is growing significantly. Brinks has a strong balance sheet with good borrowing capacity.

Madeleine Beaumont (pictured on home page)

Madeleine Beaumont has been a Senior Portfolio Manager of Australian Fundamental Equities at BlackRock Asset Management Australia Limited since June 2015. She began her career in stockbroking, then transferred to the buy-side at SBC Brinson. At M&G, the investment arm of Prudential PLC, Madeleine was rated the number 2 Consumer Analyst.

Best idea: Fairfax

Fairfax owns Domain, which has had sales growth over 33% pa for the last three years, and is now the No 2 in real estate advertising. It has won awards for the best app, taking advantage of the trend to mobile consuming.

Domain is Fairfax’s key asset, where they are injecting a lot of support and money. It is relatively cheap to advertise on Domain, giving future pricing opportunity. It has a data rich platform, with the ability to delve deeper into the value chain for other products such as mortgages and insurance.

The key driver of profit is property turnover, and Australia is at a 23-year low in market turnover. This is because most people believe prices will continue to rise and are unwilling to sell. But there are always life events which lead to property sales and changes which stimulate turnover activity.

Blackrock believes Domain is worth more than the market value of Fairfax. Fairfax is synonymous with newspapers, but it is rapidly reducing its exposure to print, and already earns 60% of revenue from non-print sources.

Current media ownership laws are out of date and local players will have future opportunities. Fairfax is also in radio and New Zealand, and Stan is largely being ignored in valuations despite having over 600,000 active subscribers. Fairfax has a 6.5% free cash flow and pays a 4.8% dividend.

We believe it has a cheap valuation and a strongly-aligned management team. People will always be buying and selling homes and investments, making Domain an excellent business.

Patrick Hodgens

Patrick Hodgens is Head of Equities at Macquarie Investment Management and lead portfolio manager of the Macquarie High Conviction Fund, winner of the Money Management / Lonsec Australian Equities (Broad Cap) Fund Manager of the Year award in 2016. 

Best idea: Chorus

The best lesson I have learned is there is a big difference between an exciting industry and an exciting investment. The best opportunities often come from a boring industry.

Evolution Mining, Qantas and Bluescope are my second, third and fourth best ideas, but Chorus is at the top. It is listed on the ASX and is a New Zealand telecommunications company. It is building the country’s ultrafast broadband network and therefore has high capex at the moment. The share price was marked down in previous years due to a regulated pricing regime but it has recovered strongly.

This opportunity was found by focusing on what is happening now not in the past, being unconstrained and investigating where others are not looking.

It’s a yield stock with a difference. In recent years, the Australian ‘yield basket’ (companies like banks and utilities which are sometimes considered alternatives to bonds) has outperformed the ASX 200 to become 36% of the index from only 7% in 2008. However, it has fallen out of favour in recent months. We look for the future yielders which have improving and sustainable cash flows. Chorus’s capex spend will fall in the near future giving it a rapid increase in free cash flow. Sustainable and growing cash flows will translate into dividends.

We believe this is the cheapest yield stock in the market today. It can be bought for less than half its intrinsic value but it requires patience and investing for the long-term. The stock has halved and then tripled. The regulatory regime is now certain for at least the next three years, and by 2020 and beyond it will look like a typical infrastructure company and perhaps buy back some shares.

 

This is general information and the investments may not be suitable in many portfolios as the personal circumstances of investors are unknown. Cuffelinks accepts no responsibility for the performance of the investments and this is the author's version of the talks.

 

banner

Most viewed in recent weeks

Lessons when a fund manager of the year is down 25%

Every successful fund manager suffers periods of underperformance, and investors who jump from fund to fund chasing results are likely to do badly. Selecting a manager is a long-term decision but what else?

2022 election survey results: disillusion and disappointment

In almost 1,000 responses, our readers differ in voting intentions versus polling of the general population, but they have little doubt who will win and there is widespread disappointment with our politics.

Welcome to Firstlinks Election Edition 458

At around 10.30pm on Saturday night, Scott Morrison called Anthony Albanese to concede defeat in the 2022 election. As voting continued the next day, it became likely that Labor would reach the magic number of 76 seats to form a majority government.   

  • 19 May 2022

Betting markets as election predictors

Believe it or not, betting agencies are in the business of making money, not predicting outcomes. Is there anything we can learn from the current odds on the election results?

Keep mandatory super pension drawdowns halved

The Transfer Balance Cap limits the tax concessions available in super pension funds, removing the need for large, compulsory drawdowns. Plus there are no requirements to draw money out of an accumulation fund.

Welcome to Firstlinks Edition 455 with weekend update

The resolve of many investors to focus on the long term with their share portfolios is increasingly tested as the list of negatives lengthens. There is a lack of visionary policies during an election campaign and stimulatory spending is contradicting the aims of tighter monetary policy.

  • 28 April 2022

Latest Updates

In praise of our unique democracy and its sausage

For all the shortcomings of our political campaigns, our election process is the best. We are blessed with honest administrators and procedures that we all trust to hand over power peacefully, with a big snag. 

Investment strategies

Is the investing landscape really different this time?

Many market analysts argue that the pandemic has changed everything but we must judge whether the circumstances are as drastic as billed. A quick review of four major events helps decide if this time is different.

Economy

Comparing generations and the nine dimensions of our well-being

Using the nine dimensions of well-being used by the OECD, and dividing Australians into Baby Boomers, Generation Xers or Millennials, it is surprisingly easy to identify the winners and losers for most dimensions.

Retirement

When will I retire? Economic impact of an ageing population

About 39% of the labour force is aged over 45. Intergenerational reports highlight the challenges of an ageing population and the impacts on consumption patterns, dependencies, public finances and economic growth.

The real story behind the crypto crash

The recent sell-off in the crypto market and its trigger - the collapse of the Terra UST coin - has affected many institutions either holding or trading crypto assets, including crypto fund managers.

Investment strategies

Cash is the nightingale, the bird in the hand

The bird in the hand is worth two in the bush, and it's an apt metaphor for investment choices. In 2021, as investors hunted in the bush for decent returns, demand overwhelmed supply. Cash is the bird in the hand.

Strategy

Book review of 'Putin’s People' and his motivation for war

Author Catherine Belton argues Putin’s sole ambition is to hold onto power. Her book seeks to understand why Putin invaded Ukraine after he became isolated and out of touch with reality during the pandemic.

Sponsors

Alliances

© 2022 Morningstar, Inc. All rights reserved.

Disclaimer
The data, research and opinions provided here are for information purposes; are not an offer to buy or sell a security; and are not warranted to be correct, complete or accurate. Morningstar, its affiliates, and third-party content providers are not responsible for any investment decisions, damages or losses resulting from, or related to, the data and analyses or their use. Any general advice or ‘regulated financial advice’ under New Zealand law has been prepared by Morningstar Australasia Pty Ltd (ABN: 95 090 665 544, AFSL: 240892) and/or Morningstar Research Ltd, subsidiaries of Morningstar, Inc, without reference to your objectives, financial situation or needs. For more information refer to our Financial Services Guide (AU) and Financial Advice Provider Disclosure Statement (NZ). You should consider the advice in light of these matters and if applicable, the relevant Product Disclosure Statement before making any decision to invest. Past performance does not necessarily indicate a financial product’s future performance. To obtain advice tailored to your situation, contact a professional financial adviser. Articles are current as at date of publication.
This website contains information and opinions provided by third parties. Inclusion of this information does not necessarily represent Morningstar’s positions, strategies or opinions and should not be considered an endorsement by Morningstar.

Website Development by Master Publisher.