Rudi’s View: Infomedia, MNF Group & BHP

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 | Jul 17 2020

In Part Two of this week’s Weekly Insights:

-Conviction Calls
-FNArena Talks

Conviction Calls

By Rudi Filapek-Vandyck, Editor FNArena

The August reporting season is approaching in Australia and emerging companies specialists at Morgan Stanley have lined up their Conviction Picks for the season, as well as a few candidates best avoided.

Morgan Stanley really, really likes communication/infrastructure company MNF Group ((MNF)), pointing out management has twice reiterated guidance for FY20 and the company’s operations are genuinely enjoying a boost from lockdowns and the global pandemic.

MNF, reports Morgan Stanley, is one of few companies on the ASX for which the analysts feel confident the company will be able to beat pre-virus forecasts in August.

Typical for the year, Morgan Stanley’s second ranked favourite stock equally operates in the technology space with Nitro Software ((NTO)) allowing users to create and share PDF documents, in and outside of the cloud, without paying Adobe for the privilege.

Nitro management too is enjoying a boost since lockdowns and has reiterated guidance as printed in IPO documents.

Favourite number three is Breville Group ((BRG)), which shouldn’t surprise as Morgan Stanley only initiated coverage this week, and it truly was a glowing assessment of Sydney-based manufacturer of home appliances under well-known brands Kambrook, Ronson, Sage, and Breville.

Morgan Stanley is cautious regarding Webjet ((WEB)), G8 Education ((GEM)), and Lovisa Holdings ((LOV)), also noting Lovisa has traditionally not been strong in online sales.

Two stocks received an honourable mention: Pacific Smiles Group ((PSQ)), which could materially surprise if June momentum continues, and 3P Learning ((3PL)) which might transform itself into the come-back kid du jour.

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Quant analysts at Credit Suisse have equally done their homework and lined up potential surprises and disappointments, re-ratings and de-ratings ahead of the August reporting season.

As is standard practice for the quant desk, a lot of mumbo jumbo on the basis of historic and other data is behind the lists of names generated.

Candidates for a potential de-rate in August include Woodside Petroleum ((WPL)), Ampol ((ALD)), Mineral Resources ((MIN)), Fortescue Metals ((FMG)), Fletcher Building ((FBU)), Boral ((BLD)), Qube Holdings ((QUB)), Cleanaway Waste Management ((CWY)), Wesfarmers ((WES)), Breville Group, Coles ((COL)), Woolworths ((WOW)), Fisher & Paykel Healthcare ((FPH)), ResMed ((RMD)), CommBank ((CBA)), Bank of Queensland ((BOQ)), QBE Insurance ((QBE)), Medibank Private ((MPL)), Netwealth ((NWL)), ASX ((ASX)), Spark New Zealand ((SPK)), Telstra ((TLS)), Appen ((APX)), WiseTech Global ((WTC)), Spark Infrastructure ((SKI)), AusNet Services ((AST)), Goodman Group ((GMG)), and Centuria Industrial REIT ((CIP)).

A quick glance throughout that list shows most candidates are trading on a sizeable premium to broader market, or they have been battling battles for quite some time.

Companies seen as potential re-rate candidates in August include Resolute Mining ((RSG)), Northern Star ((NST)), Austal ((ASB)), Tassal Group ((TGR)), United Malt Group ((UMG)), Avita Medical ((AVH)), Clinuvel Pharmaceuticals ((CUV)), Insurance Australia Group ((IAG)), nib Holdings ((NHF)), Omni Bridgeway ((OBL)), TPG Telecom ((TPG)), NextDC ((NXT)), and Charter Hall Long WALE REIT ((CLW)).

For those who are worried about market positioning (either way), the quant team has lined up two additional lists.

Crowded shorts include Downer EDI ((DOW)), Virgin Money UK ((VUK)), Star Entertainment Group ((SGR)), Beach Energy ((BPT)), Spark Infrastructure, Aristocrat Leisure ((ALL)), QBE Insurance, Treasury Wine Estates ((TWE)), Sydney Airport ((SYD)), and AGL Energy ((AGL)).

Crowded longs include Afterpay ((APT)), AMP ((AMP)), Rio Tinto ((RIO)), a2 Milk ((A2M)), Reliance Worldwide ((RWC)), WiseTech Global, Domino’s Pizza ((DMP)), BHP Group ((BHP)), Tabcorp Holdings ((TAH)), and JB Hi-Fi ((JBH)).

The underlying suggestion is that the first group could potentially reverse negative sentiment whereby shorts need to cover and others jump on board, which could put some genuine fireworks underneath the share price.

In terms of the second list, the suggestion is that once everybody is on board, there’s not much left in terms of additional buyers, so any further upside might be limited even in case of a positive surprise.

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One of the advantages of seeing professional investors struggle with market momentum and hard-to-beat benchmarks is that an increasing number feels an urge to communicate more often with media and retail investors.

Local stalwart Ausbil released a Q&A formatted macro outlook with co-founder, executive chairman & chief investment officer, head of equities, Paul Xiradis.


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