Rudi’s View: Treasury Wine, PWR Holdings, Star Entertainment

rudi-views
Always an independent thinker, Rudi has not shied away from making big out-of-consensus predictions that proved accurate later on. When Rio Tinto shares surged above $120 he wrote investors should sell. In mid-2008 he warned investors not to hold on to equities in oil producers. In August 2008 he predicted the largest sell-off in commodities stocks was about to follow. In 2009 he suggested Australian banks were an excellent buy. Between 2011 and 2015 Rudi consistently maintained investors were better off avoiding exposure to commodities and to commodities stocks. Post GFC, he dedicated his research to finding All-Weather Performers. See also "All-Weather Performers" on this website, as well as the Special Reports section.

Rudi's View | Sep 14 2017

In this week's Weekly Insights (published in two separate parts):

-Not In The Mood
-Conviction Calls: CLSA, Morgans, Wilsons, CS, Ord Minnett, Citi
-Post August Share Price Impact
-CBA And The Premium Gone (Vol 3)
-Rudi On BoardRoomRadio (Updated)
-Post August Broker Research Nuggets
-2016 - L'Année Extraordinaire
-All-Weather Model Portfolio
-Rudi On TV
-Rudi On Tour


[Note the non-highlighted items appeared in part one]

Conviction Calls: CLSA, Morgans, Wilsons, CS, Ord Minnett, Citi

By Rudi Filapek-Vandyck, Editor FNArena

The Australian share market offers exposure to some high quality, genuinely strong growth stories. Think Aristocrat Leisure ((ALL)), a2 Milk ((A2M)), Corporate Travel ((CTD)) and Altium ((ALU)), to name a few. One of the more contentious names is Treasury Wine Estates ((TWE)). Having first disappointed investors in its ex-Foster's existence, the stock has nearly tripled since 2015 and yet another strong performance in August has ignited the next leg upwards for the shares.

The stock has never traded without a certain level of controversy and today certainly is no different. Stock Analysis on the FNArena website shows out of the seven stockbrokers covering the company, only Morgan Stanley and Ord Minnett have a positive rating. In the latter's case it's Accumulate, the number two level, instead of the highest rating which is Buy.

Only Morgan Stanley has a price target above today's share price. This smacks of a comparison with Cochlear ((COH)), yet another prime growth success whose share price is constantly above stockbroker valuations; thus nobody ever likes it, but shareholders cannot but keep smiling as the share price continues to rally higher.

Cochlear shares appreciated 2.5x since early 2014. Admittedly, they had a much tougher time during the three years prior.

One of the unwavering supporters of Treasury Wine, CLSA, thinks investors can still jump on board and enjoy further strong gains. The secret, so to speak, according to CLSA lies within the margin. The analysts firmly believe, with conviction, that management still has multiple levers to pull to push the operational margin to a level closer to that of the competition.

This, says CLSA, is not well understood by the market. Hence general scepticism and a sense of: surely this share price must come back down to earth shortly? Not so, predicts CLSA who remains confident enough to declare the stock a Conviction Buy with a price target of $17.

On the other side, Citi's latest update on the company represents the opposing side of the argument with Citi analysts stating the company is being treated like a luxury stock but 75% of all products sold are commercial which is enduring price and margin pressures. Citi analysts point out price per case has remained stagnant for the past two years. The analysts cannot see how the current valuation stacks up. They certainly do not share CLSA's conviction. Hence why Citi's rating remains Sell with a twelve month price target no higher than $10.90.

****

Over at stockbroker Morgans, the list of High Conviction Stocks has seen the addition of PWR Holdings ((PWH)), Aventus Retail Property Fund ((AVN)) and NextDC ((NXT)). These three new inclusions join ResMed ((RMD)), Westpac ((WBC)), Oil Search ((OSH)), Motorcycle Holdings ((MTO)), Bapcor ((BAP)) and Australian Finance Group ((AFG)).


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