Register For Our Mailing List

Register to receive our free weekly newsletter including editorials.

Home / 374

Investors don’t need to pay a fortune for tech

Large technology stocks such as Apple, Amazon and locally, Afterpay, are capturing the headlines as key beneficiaries of the COVID-19 disruptions. While valuations for these stocks are now high, investors don’t need to pay big prices on tech stocks if they are prepared to dig a little deeper.

Three examples in our portfolio that trade on reasonable valuations are News Corp, City Chic and Redbubble.

News Corp (ASX:NWS) owns a number of old-world, structurally-challenged assets such as newspapers and Pay TV. From a valuation sense these are ascribed a negative value based on the current share price. But also within NWS is a 62% holding in one of Australia’s best digital businesses,, and Dow Jones which includes the Wall Street Journal.

For the first time recently, NWS disclosed Dow Jones earnings separately in its earnings result, illustrating a jewel in the crown. 71% of revenue is digital and earnings increased 13% in the fourth quarter despite COVID-19 disruptions. Its peer, The New York Times, trades on 25x EBITDA, implying Dow Jones could be worth up to US$6 billion (70% of NWS), yet there is little ascribed in the share price in our view. Another key upcoming catalyst to close this gap is a NWS Investor Day in September focused on Dow Jones where the quality of this business will be more apparent.

Source: Iress. Price as at 11 September 2020 was $20.47.

City Chic (ASX:CCX) is a plus-sized female apparel retailer. Revenues have been impacted by COVID-19 disruptions however many peers were impacted far more. CCX has used its strong balance sheet and access to capital markets to buy the online operations of a US competitor, with a further acquisition likely in October.

With little additional operating costs, we expect they will be far more profitable than consensus estimates. Online sales will account for 70% of total, making it a largely digital retailer. CCX will come out of this crisis with significantly higher earnings and a better-quality business.

Source: Iress. Price as at 11 September was $3.27.

Redbubble (ASX:RBL) is a global online marketplace with a variety of products featuring designs from over 500,000 independent artists. It is a clear beneficiary from COVID-19 driving work from home and increased online retailing. After some disappointments in previous years, FY21 looks like being a break-out year. Sales growth has accelerated to over 100% p.a., marketing spend is more efficient with lower AdWord pricing, and operating costs are being controlled with a focus on profitable growth.

This all leads to very strong operating leverage, which we believe is under-appreciated and will lead to meaningful consensus earnings upgrades in coming months. Redbubble still trades at multiples well below its peers and generates cash as it grows, highlighting the strong economics.

Source: Iress. Price as at 11 September was $3.92.

Each of these companies have digital assets that are under-appreciated in our view, providing the opportunity to invest in strong technology businesses at a reasonable valuation.


Richard Ivers is Portfolio Manager of the Prime Value Emerging Opportunities Fund, a concentrated fund investing in companies outside the S&P/ASX100. This article is general information and does not consider the circumstances of any investor. Prices are correct at time of writing but of course change regularly.



Leave a Comment:


Most viewed in recent weeks

House prices surge but falls are common and coming

We tend to forget that house prices often fall. Direct lending controls are more effective than rate rises because macroprudential limits affect the volume of money for housing leaving business rates untouched.

Survey responses on pension eligibility for wealthy homeowners

The survey drew a fantastic 2,000 responses with over 1,000 comments and polar opposite views on what is good policy. Do most people believe the home should be in the age pension asset test, and what do they say?

100 Aussies: five charts on who earns, pays and owns

Any policy decision needs to recognise who is affected by a change. It pays to check the data on who pays taxes, who owns assets and who earns the income to ensure an equitable and efficient outcome.

Three good comments from the pension asset test article

With articles on the pensions assets test read about 40,000 times, 3,500 survey responses and thousands of comments, there was a lot of great reader participation. A few comments added extra insights.

The sorry saga of housing affordability and ownership

It is hard to think of any area of widespread public concern where the same policies have been pursued for so long, in the face of such incontrovertible evidence that they have failed to achieve their objectives.

Two strong themes and companies that will benefit

There are reasons to believe inflation will stay under control, and although we may see a slowing in the global economy, two companies should benefit from the themes of 'Stable Compounders' and 'Structural Winners'.

Latest Updates


$1 billion and counting: how consultants maximise fees

Despite cutbacks in public service staff, we are spending over a billion dollars a year with five consulting firms. There is little public scrutiny on the value for money. How do consultants decide what to charge?

Investment strategies

Two strong themes and companies that will benefit

There are reasons to believe inflation will stay under control, and although we may see a slowing in the global economy, two companies should benefit from the themes of 'Stable Compounders' and 'Structural Winners'.

Financial planning

Reducing the $5,300 upfront cost of financial advice

Many financial advisers have left the industry because it costs more to produce advice than is charged as an up-front fee. Advisers are valued by those who use them while the unadvised don’t see the need to pay.


Many people misunderstand what life expectancy means

Life expectancy numbers are often interpreted as the likely maximum age of a person but that is incorrect. Here are three reasons why the odds are in favor of people outliving life expectancy estimates.

Investment strategies

Slowing global trade not the threat investors fear

Investors ask whether global supply chains were stretched too far and too complex, and following COVID, is globalisation dead? New research suggests the impact on investment returns will not be as great as feared.

Investment strategies

Wealth doesn’t equal wisdom for 'sophisticated' investors

'Sophisticated' investors can be offered securities without the usual disclosure requirements given to everyday investors, but far more people now qualify than was ever intended. Many are far from sophisticated.

Investment strategies

Is the golden era for active fund managers ending?

Most active fund managers are the beneficiaries of a confluence of favourable events. As future strong returns look challenging, passive is rising and new investors do their own thing, a golden age may be closing.



© 2021 Morningstar, Inc. All rights reserved.

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.