Rudi’s View: Macquarie, Huon And Bravura

This story features MACQUARIE GROUP LIMITED, and other companies. For more info SHARE ANALYSIS: MQG

In this week's Weekly Insights (this is the second part):

-Is This The Melt Up?
-Conviction Calls: Shaw, Bell Potter, CLSA, MS, GS, JPMorgan, CS
–Last Ticket For Sale!
-Everybody Wrong! (Almost)
-New Website: Where To Find Rudi On Twitter
-Rudi On BoardRoom.Media (Updated)
-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: Shaw, Bell Potter, CLSA, Morgan Stanley, Goldman Sachs, JPMorgan, CS

By Rudi Filapek-Vandyck, Editor FNArena

Macquarie Group's ((MQG)) interim release surprised to the upside last week and analysts have been left scrambling to upgrade their price targets for the Golden Doughnut. But none has been as aggressive, on my observation, as Shaw and Partners where the price target moved to $114.10 from $102.44.

Somewhere inside the research update, Shaw's analyst declares "we are big bulls", continuing to expect that management guidance for the full year will prove conservative. The title above Shaw's report says it all: "If you are on the bus, stay on the bus. If you are not on the bus, get on the bus". Buy.

Shaw's meaty jump in price target is even more remarkable since TS Lim over at Bell Potter, having equally been one of the most bullish on the stock for quite a while, has only raised its new price target to $105 from $100 previously. Bell Potter equally rates the stock a Buy.

But let's not forget CLSA's Brian Johnson who most likely has the longest track record in Australia for being bullish Macquarie. Johnson's new target of $114 is only 10c off Shaw's high marker. CLSA does not simply rate Macquarie a Buy; it's a Conviction Buy. Has been for quite a while.

(See also Stock Analysis on the FNArena website).

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Last week, I reported Morgan Stanley analysts had put in the hard yakka to determine what exactly is the outlook for Australia's key companies in the Chemicals sector, and the conclusion was that both Incitec Pivot ((IPL)) and Orica ((ORI)) were more likely to disappoint bullish expectations after already noticeable share price rallies for both.

Less than one week later and those same analysts have been forced to temporarily revise their view on Incitec Pivot. Morgan Stanley is now of the view that higher urea prices, which are seen as the key trigger for a buoyant share price, are likely to hold up a little while longer. The analysts estimate another two-three months or so.

Hence their current view is that Incitec Pivot's share price is likely to rise further over the next 45 days, also supported by market expectations of a capital management announcement at its FY17 result release scheduled for 14 November. In line with the earlier conclusion drawn, Morgan Stanley analysts don't think present buoyancy will stick further out.

Their view is based upon the assessment that significant investment made across nitrogen and phosphate fertiliser capacity worldwide means recent price rises won't be sustained beyond the short term.

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Goldman Sachs is no longer carrying a Conviction Short on Fortescue Metals ((FMG)). On Friday, while observing the shares had underperformed the ASX200 by -18% since the start of September, the analysts decided it's time to upgrade to a Neutral rating. The implied additional downside between share price and $5.05 price target had shrunk to a mere -6%.

Other Sell rated mining stocks, including Northern Star ((NST)), Western Areas ((WSA)) and Whitehaven Coal ((WHC)), are still suggesting further downside of between -23% and -45%, so the decision on Fortescue shouldn't surprise.

There is a dark side to this story, however, as Goldman Sachs originally placed a Conviction Sell on Fortescue in mid-April 2015. Since that time, the broader index has hardly moved, but Fortescue shares are up 172%, despite recent weakness. One wonders why they waited this long?

ANZ Bank ((ANZ)) couldn't quite match expectations with its FY17 report, but Goldman Sachs saw further proof the new strategy is starting to deliver improved profitability. A mere hint of more capital returns in 2018 was more than enough for Goldman Sachs to keep ANZ on its Conviction Buy list.

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Analysts at JP Morgan recently returned from a visit to Tasmania with even greater confidence that market concerns over salmon production impediments and potential cost blow-outs are overdone. Hence share prices for Tassal Group ((TGR)) and, in particular, Huon Aquaculture ((HUO)) should be a lot higher.

On the analysts' observation, wholesale pricing for normal-sized fish generally is stable at $14.50–15.0/kg. If prices do not fall, current Price-Earnings ratios seem too low for next year.

There is, however, discounting going on for large sized fish. This part of the market only represents a minor proportion for both salmon producers, but JPMorgan analysts nevertheless intend to do some extra digging as to how such discounting can potentially impact on blended prices.

To be continued.

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Market strategists at Credit Suisse suggest as long as the RBA stays on hold, equity investors can keep their bullish hat on regarding the outlook for domestic equities. Since Credit Suisse doesn't think there is a genuine threat for rate hikes on the horizon (indeed, the house view is for potential further rate cuts), the strategists remain of the view that any concerns about bloated share prices will largely remain just that.

The strategists continue to avoid stocks whose valuation is impacted by higher bond yields, including APA Group ((APA)), Qube Holdings ((QUB)) and Charter Hall ((CHC)). Instead, they advise investors to focus on potential beneficiaries from a higher cost of capital; companies that can fund their operations with other-people's-money (no kidding, that's literally what it says in their most recent strategy update).

Companies that suit the latter framework include Computershare ((CPU)), Qantas ((QAN)) and Tabcorp ((TAH)). Credit Suisse has added Qantas to its Long Portfolio, while adding Qube to its Short Portfolio. Equally interesting, perhaps, is that Qantas is replacing Rio Tinto ((RIO)) while the previous short on Cochlear ((COH)) hasn't work out (CS forced to abandon position at a loss).

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The wealth management industry is equally going through transformative times and sector analysts are increasingly paying attention. On the top end in Australia, juggernauts such as AMP are struggling (and have been for a while) while major banks have now decided this is not the easy growth industry it appeared one or two decades ago.

On the bottom of the market, all kinds of new entrants are emerging on the back of new technologies and efficiencies, as well as a trend towards more independent financial advice in general. Wilsons recently added a handful of small cap emerging players in the latter category to its active coverage in Australia.

Apart from Hub24 ((HUB)), which was initiated with a Hold rating, all others received a maiden Buy recommendation; EQT Holdings ((EQT)) with a price target of $19.85, Fiducian ((FID)) with a target of $5.73, OneView ((OVH)) with a 91c target, and Praemium ((PPS)) with a 66c target.

All companies are believed to be positioned to benefit from shifting industry dynamics on two-three years horizon.

Equally, Wilsons has added three platform companies with leverage to cloud services. Xero ((XRO)) received a maiden Hold rating, alongside a price target of $32.31, with the analysts referring to present valuation as to why the first rating is not a Buy. No such obstacles were present for Bravura Solutions ((BVS)) and for LiveTiles ((LVT)).

Both Bravura and LiveTiles should grow strongly for years to come, if Wilsons' projections can be relied upon. The first starts off on a price target of $2.06, while for LiveTiles the maiden target sits at 41c.

Wilsons already covers a number of platform-based technology companies, of which Elmo Software ((ELO)) Class ((CL1)), AfterPay Touch ((APT)) and EML Payments ((EML)) are included on Wilsons' Conviction List.

On Wilsons' assessment, there are now 200 listed technology companies on the ASX and they represent circa 15% of the ASX Small Industrials, equally divided between IT and software & services. The combined index weight was less than 5% in 2013.

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Late addition (as Morgans distributed its Australia Strategy report on Tuesday morning): Stockbroker Morgans has added Link Administration ((LNK)) to its list of High Conviction Stocks.

Morgans is attracted to the high level of recurring revenues (in excess of 70%) on the back of 3-5 year contracts in a relatively defensive industry, while there is potential to surprise through higher than estimated synergies from the recent acquisition in the UK.

New Website: Where To Find Rudi On Twitter

The question arrives in FNArena's inbox on a regular basis: I am not on Twitter, but is there a way I can still see what Editor Rudi is posting on Twitter?

The answer is: Yes, you can!

The new website has integrated Rudi's messages on Twitter and everybody who visits the website, no logging on is required, can read what Rudi is posting. At a slight delay (up to 30 minutes) and up until a certain point, because Twitter limits how far such windows outside the Twitter platform can go back in time.

Locating Rudi On Twitter should be easy and straightforward for visitors/subscribers using a desktop of laptop pc. On the far right of the website, underneath the Search Stocks and Stories facility sits a dedicated window with Rudi On Twitter as title above it. A scroll bar on the side allows for going back in time.

Unfortunately, any images won't display and this applies to both original Tweets and Retweets of others' postings.

For those who visit via mobile phone, iPad or other smaller screen device finding Rudi On Twitter requires a little more effort as the adaptive website design changes display and ranking order when having to adapt to smaller screens.

On a standard mobile phone, Rudi On Twitter will show up third, after Latest News/Broker Call and Stock Analysis, again below Search Stocks & Stories.

Another question that is sometimes asked is whether paid subscribers can access the FNArena website through different devices. The answer is yes, only not simultaneously (for obvious reasons; each paid subscription is for one subscriber only).

Last but not least, FNArena is actively developing its corporate presence on Twitter, Facebook and LinkedIn. Everybody is invited to check it out and join the growing online community of active investors who like our philosophy, the service we are providing, and who like to stay connected.

FNArena is looking forward to welcoming you on each of its online, social media presences.

Rudi On BoardRoom.Media (Updated)

Audio interview from last week:

https://boardroom.media/broadcast/?eid=59f7dc7e5d7cfb1348b3c635

2016 – L'Année Extraordinaire

It was quite the exceptional year, 2016, and I did grab the opportunity to write down my observations and offer investors today the opportunity to look back, relive the moments and draw some hard conclusions about investing in the world today.

If you are a paid subscriber to FNArena, and you still haven't downloaded your copy, all you have to do is visit the website, look up "Special Reports" and download your very own copy of "Who's Afraid Of The Big Bad Bear. Chronicles of 2016, A Veritable Year Extraordinaire" (in PDF).

For all others who still haven't been convinced, eBook copies are for sale on Amazon and many other online channels. You'll have to visit a foreign Amazon website to also find the print book version.
 

All-Weather Model Portfolio

In partnership with Queensland based Vested Equities, FNArena manages an All-Weather Model Portfolio based upon my post-GFC research. The idea is to offer diversification away from banks and resources stocks which are so dominant in Australia, while also providing ongoing real time evidence into the validity of my research into All-Weather Performers.

This All-Weather Model Portfolio is available through Self-Managed Accounts (SMAs) on the Praemium platform. For more info: info@fnarena.com

Rudi On TV

This week my appearances on the Sky Business channel are scheduled as follows:

-Tuesday, 11.15am Skype-link to discuss broker calls
-Thursday, Noon-2pm, Trading Day Live
-Thursday, between 7-8pm, interview on Switzer TV
-Friday, 11.15am Skype-link to discuss broker calls

Rudi On Tour

– I will be presenting in Adelaide on November 14th to members of Australian Investors Association and other investors, 7pm inside the Fullarton Community Centre, 411 Fullarton Rd, Fullarton. Title of presentation: Investing In A Slow Growing World – An Update

(This story was written on Monday 30th October, 2017. This first part was published on the day in the form of an email to paying subscribers at FNArena, and again on the following Wednesday as a story on the website. This is part two).

(Do note that, in line with all my analyses, appearances and presentations, all of the above names and calculations are provided for educational purposes only. Investors should always consult with their licensed investment advisor first, before making any decisions. All views are mine and not by association FNArena's – see disclaimer on the website.

In addition, since FNArena runs a Model Portfolio based upon my research on All-Weather Performers it is more than likely that stocks mentioned are included in this Model Portfolio. For all questions about this: info@fnarena.com or via the direct messaging system on the website).

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BONUS PUBLICATIONS FOR FNARENA SUBSCRIBERS

Paid subscribers to FNArena (6 and 12 mnths) receive several bonus publications, at no extra cost, including:

– The AUD and the Australian Share Market (which stocks benefit from a weaker AUD, and which ones don't?)
– Make Risk Your Friend. Finding All-Weather Performers, January 2013 (The rationale behind investing in stocks that perform irrespective of the overall investment climate)
– Make Risk Your Friend. Finding All-Weather Performers, December 2014 (The follow-up that accounts for an ever changing world and updated stock selection)
– Change. Investing in a Low Growth World. eBook that sells through Amazon and other channels. Tackles the main issues impacting on investment strategies today and the world of tomorrow.
– Who's Afraid Of The Big Bad Bear? eBook and Book (print) available through Amazon and other channels. Your chance to relive 2016, and become a wiser investor along the way.

Subscriptions cost $380 for twelve months or $210 for six and can be purchased here (depending on your status, a subscription to FNArena might be tax deductible): https://www.fnarena.com/index2.cfm?type=dsp_signup

(Do note that, in line with all my analyses, appearances and presentations, all of the above names and calculations are provided for educational purposes only. Investors should always consult with their licensed investment advisor first, before making any decisions.)  

P.S. I – All paying members at FNArena are being reminded they can set an email alert for my Rudi's View stories. Go to My Alerts (top bar of the website) and tick the box in front of 'Rudi's View'. You will receive an email alert every time a new Rudi's View story has been published on the website. 

P.S. II – If you are reading this story through a third party distribution channel and you cannot see charts included, we apologise, but technical limitations are to blame.

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