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, realestate.com.au, 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:

RELATED ARTICLES

5 exciting areas of investment opportunity

A top quality company shows cheaper is not better

Opening Gates: AI is as revolutionary as the internet

banner

Most viewed in recent weeks

Which generation had it toughest?

Each generation believes its economic challenges were uniquely tough - but what does the data say? A closer look reveals a more nuanced, complex story behind the generational hardship debate. 

Maybe it’s time to consider taxing the family home

Australia could unlock smarter investment and greater equity by reforming housing tax concessions. Rethinking exemptions on the family home could benefit most Australians, especially renters and owners of modest homes.

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

The Labor government is talking up tax reform to lift Australia’s ailing economic growth. Before any changes are made, it’s important to know who pays tax, who owns assets, and how much people have in their super for retirement.

The best way to get rich and retire early

This goes through the different options including shares, property and business ownership and declares a winner, as well as outlining the mindset needed to earn enough to never have to work again.

A perfect storm for housing affordability in Australia

Everyone has a theory as to why housing in Australia is so expensive. There are a lot of different factors at play, from skewed migration patterns to banking trends and housing's status as a national obsession.

Chinese steel - building a Sydney Harbour Bridge every 10 minutes

China's steel production, equivalent to building one Sydney Harbour Bridge every 10 minutes, has driven Australia's economic growth. With China's slowdown, what does this mean for Australia's economy and investments?

Latest Updates

Economy

Why we should follow Canada and cut migration

An explosion in low-skilled migration to Australia has depressed wages, killed productivity, and cut rental vacancy rates to near decades-lows. It’s time both sides of politics addressed the issue.

Investing

Simple maths says the AI investment boom ends badly

This AI cycle feels less like a revolution and more like a rerun. Just like fibre in 2000, shale in 2014, and cannabis in 2019, the technology or product is real but the capital cycle will be brutal. Investors beware.

Property

Australian house price speculators: What were you thinking?

Australian housing’s 50-year boom was driven by falling rates and rising borrowing power — not rent or yield. With those drivers exhausted, future returns must reconcile with economic fundamentals. Are we ready?

Shares

ASX reporting season: Room for optimism

Despite mixed ASX results, the market has shown surprising resilience. With rate cuts ahead and economic conditions improving, investors should look beyond short-term noise and position for a potential cyclical upswing.

Property

A Bunnings play without the hefty price tag

BWT Trust has moved to bring management in house. Meanwhile, many of the properties it leases to Bunnings have been repriced to materially higher rents. This has removed two of the key 'snags' holding back the stock.

Investment strategies

Replacing bank hybrids with something similar

With APRA phasing out bank hybrids from 2027, investors must reassess these complex instruments. A synthetic hybrid strategy may offer similar returns but with greater control and clearer understanding of risks.

Shares

Nvidia's CEO is selling. Here's why Aussie investors should care

The magnitude of founder Jensen Huang’s selldown may seem small, but the signal is hard to ignore. When the person with the clearest insight into the company’s future starts cashing out, it’s worth asking why.

Sponsors

Alliances

© 2025 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. To the extent any content is general advice, it has been prepared for clients of Morningstar Australasia Pty Ltd (ABN: 95 090 665 544, AFSL: 240892), without reference to your financial objectives, situation or needs. For more information refer to our Financial Services Guide. 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.