Every quarter, Livewire’s Chris Conway and Kerry Sun analyse insider transactions to see which directors have been buying and selling their own stock.
That analysis consistently shows that directors are particularly active around major announcements. If the company puts out a positive announcement – such as hitting an operational milestone or making an acquisition - they are often willing buyers on the back of the good news.
If only there were a way to identify these game-changing opportunities before they are announced to the market.
Sometimes, major strategic moves and company catalysts are telegraphed to the market. The Tabcorp demerger last year, for example, was the subject of multiple investor activism campaigns, over multiple years, before finally coming to fruition.
BHP selling its oil assets is another example of a well-telegraphed event, while the recent Santos and Oil Search merger would have been discussed in the war room of every energy analyst and investment banker for years before it was ever consummated.
While the examples above were well covered by the financial press, that is not always the case. As such, oftentimes only an intimate knowledge of a company can allow one to identify and accurately forecast these game-changing developments.
In that vein, we’ve asked 12 of Australia’s most well-known fund managers for a company that could have a game-changing development over the next 12 months, elevating them to star status.
Our featured experts include (in order of appearance):
Matthew Haupt, Wilson Asset Management
Mary Manning, Alphinity Investment Management
Bob Desmond, Claremont Global
Daniel Sullivan, Janus Henderson
Emma Fisher, Airlie Funds Management
Chris Stott, 1851 Capital
Joel Fleming, Yarra Capital Management
Vihari Ross, Antipodes
Dr Philipp Hofflin, Lazard Asset Management
Francyne Mu, Franklin Templeton
Marc Whittaker, IML
Matthew Kidman, Centennial Asset Management
Note: You can watch the video by clicking the player, listen to the podcast, or read an edited transcript below. These interviews were filmed on Tuesday, 12 December 2023.
James Marley: Hi there and welcome to Livewire's Outlook series for 2024. My name is James Marley.
Ally Selby: And I'm Ally Selby. The ASX 200 really hasn't gone anywhere over the last two years. But if there's one thing fund managers tell us time and time again is to always look beneath the surface.
James Marley: So, in this video, you'll hear about a selection of stocks that have game-changing catalysts that could elevate them to star status in the year ahead.Is there a company out there that you think has a really interesting catalyst that could really elevate its prospects in 2024?
Matthew Haupt: For me it's Orora. So Orora spun out of Amcor. Pretty boring business, boxes and bottles. They went and bought Saverglass this year, which was a French company that produced high-end bottles. The market didn't like it, but I don't think they've understood the business and how valuable the business is, and how the destocking, which has happened this year, is already in their numbers for next year. So, for me, that is a clear standout. That acquisition is settling at the moment, and that looks like a clear winner for 2024.
Mary Manning: Shein. This is not really answering your question because it's not listed yet, but Shein is one of the largest e-commerce companies in the world, and it's slated to IPO in the first half of 2024. So, if any of your listeners have teenagers, you've probably had a package from Shein delivered to your house. It's really taking share from Amazon and some of the global players in terms of e-commerce. And the price point is lower than a lot of the other options out there. So I think it's important for two reasons. Number one, it has implications for global e-commerce and also for big box retailers and other consumer stocks in the U.S. Secondly, it'll be important for the IPO market. Shein is valued anywhere between $60 and $100 billion, depending on what sort of valuation metrics you use, and last year, the IPO's for Arm (Holdings), Birkenstock, Instacart - they were pretty disappointing. So, if Shein can list and do well, I think it'll be an important signal that the IPO market is open. And I think it'll be interesting for those of us who cover e-commerce stocks to see what the implications are for competitors.
Bob Desmond: Generally, we don't buy companies expecting a catalyst in the future, but I think within the portfolio that I would point to, which hasn't had a great run of late, would be Nike because it's had quite a few headwinds over the last few years. China's been shut down, freight costs were elevated, it had too much inventory in the channel, it has had to discount. And I think as we go through the year, all of those pressures will reverse and abate, and we'll see nice margin progression. And I think then the market will move to focus on what I really think is the true story of Nike, which is the move increasingly into direct distribution.
Daniel Sullivan: At the moment, that's the junior lithiums, which is rather strange. The senior lithiums are struggling, the lithium price is weak. It's had an enormous cycle, up 10 times and then down 80%. So it's been a difficult space, but junior lithiums are still finding resources quite promptly and getting rewarded for that. So, there are a few of them in the portfolio. Some have done quite well, and there are others we think we'll find. So we've just had ... My colleagues have been out in the West and probably saw 60 companies last week or the week before that. And yeah, there's a lot to be seen and a lot of action still to come.
Ally Selby: If you had to name one of them, which would it be?
Daniel Sullivan: The one we've been owning is Azura, and that's done quite well. But there are a lot of them, and it's part of that thematic that, as we go to electric vehicles - the lithium supply needs to be up around 10 times probably. So there's plenty of space for everybody, and we have to see a lot more companies come to the market as well.
Emma Fisher: I think Mineral Resources has a really big year ahead of it. MIN has a mining services business, an iron ore business and a lithium business. In their iron ore business in 2024, they're bringing on a big project at Onslow, which will take them from a very high-cost marginal iron ore producer to a low-cost iron ore producer. And when they've got that up and running, that'll be 35 million tonnes of iron ore, which if it comes on at anywhere near where iron ore prices are today, is going to print cash for them. Lithium, they're probably going to double or triple production over the next 12 to 24 months. So even though prices have fallen, we think earnings can stabilise and/or grow as they bring on that production. And then, the mining services business just keeps ticking along year after year. So that's one that I think will have a very big 2024.
Chris Stott: Premier Investments is the one I've selected here. PMV is the ticker. So, a retail business run by Solomon Lew. They've announced a strategic review of the overall business. They're a retailer with key brands like Smiggle and Peter Alexander. One of the options that they've talked about is potentially spinning out those brands. So Peter Alexander and Smiggle, are probably their two most valuable and best-performing brands. So if they spin those brands out, potentially the old Just Group brands could be spun into Myer, when we hypothesise about what could be done with the business. Then you're left with $400 or $500 million in net cash on the balance sheet and a substantial shareholding in Breville. So when you build some of the parts there, we think there's good value in PMV. They've flagged that the strategic review will be conducted over the first half of the next calendar year. So we think that we'll wait for the outcome of that. But that certainly could be one that could see the share price trade higher, we believe, in the event that they put some of those initiatives in place.
James Marley: What's the company that you think has a game-changing catalyst for it in 2024?
Joel Fleming: I'll hedge my bets and I'll give you two. The first one is Botanix. So that's a pharmaceutical business. They had a misfire on an initial FDA, and we're expecting an FDA approval in '24. We think that'll be a really important catalyst for the stock - so that one looks really interesting. And the second one is an engineering company, Lycopodium. They're early stage on a couple of very large-scale copper projects with Barrick. Barrick has a very strong balance sheet. We like the long-term future and outlook for copper, and we think they're really well-positioned to get behind some of these mega projects.
Vihari Ross: I'm going to give you a bit of a non-consensus pick. And that's Baidu, which is the largest search engine in China. It's got 663 million monthly active users. This is a stock that is on the cusp of AI monetization, but in fact, they've been investing in this for the last decade. So, this is something that investors are so excited about in the US and in Western markets. Baidu is the leader in AI across the stack in China, and they're on the cusp of monetizing it through their search engine, but also through their cloud and enterprise business. It's going to enable them to really accelerate their growth and really accelerate their leadership in that space as well. And this is a business that, if you exclude their cash, is trading on seven times PE, and they're also returning that cash to shareholders. So, in comparison to the type of multiple you would pay in the US market for that same durable growth trajectory that AI is going to provide, it's a really compelling pick, and we think it's something that's going to really start to be unlocked in the next year.
Dr. Philipp Hofflin: There are a couple of candidates for that. But look, let me just talk about Smartgroup. It's a business we've owned that does novated leases and salary packaging. And traditionally, the only people who can take advantage of that, of the tax arbitrage, are people who work either for the government or charities. Now, the federal government has changed the rules, and they say everybody can use that if they're buying an electric vehicle for some years. And that's going to dramatically increase the addressable market for that sector. The market is aware of this, but I think over '24, we'll see exactly how good this is going to be. So this could be a catalyst for Smartgroup in particular, and the sector as a whole.
Francyne Mu: I think e-commerce is an area that provides strong secular growth. Shopify is a company that we continue to like. I think what we've seen this year is that it's starting to show great profitability, and we should continue to see that operating leverage come through in 2024.
Marc Whittaker: We own Sigma Healthcare in the pharmaceutical wholesale space. It's been very topical lately because, all of a sudden, it's a great way to potentially get some exposure to Chemist Warehouse - which is arguably the highest-quality, best-in-class retailer in the country. So we've owned Sigma because we like the economics and the strategic nature of its assets in that pharmaceutical wholesale business, delivering drugs to pharmacists front and back of shop. But all of a sudden, it has this wonderful potential opportunity to be exposed to Chemist Warehouse, which, as I say, is a compelling opportunity for lots of investors - growing that top line, double-digit, 15% EBIT margins. Very strong operational business, very strong branding. You'd love to have a piece of that business if you could.
Matthew Kidman: Yeah, I'm going to go back to the really small end, and a little company called Vysarn. It's a drilling company that operates in the mining industry. None of that is interesting. But the drilling that they do, and they've got very unique types of drills, is to regulate water flow in the Pilbara. So the big iron ore miners, they are drilling into an aquifer, and they've got to regulate water, and they got to pump water out and pump it back in. These guys are the number one players in that. That's growing quite strongly.
Park that aside. So, the valuation supports that. A bit more steady than most drillers. What they've got coming up potentially is water rights. So they might be able to secure the water rights for excess water that comes out of the Pilbara. And where do they want that? They want it up around the Pilbara, Port Hedland and so on. There are new industries that are dying out for a regular supply of water. Now, if they can do that with virtually no capital, that's a project that could easily, if they get it right over the next four or five years, maybe four or five times the share price. Let's see. It's a new asset, but it's definitely got blue sky attached to it.
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