Buy Hold Sell

The 10 best ASX management teams right now

Mon 13 Mar 23, 9:24am (AEST)


  • Buy Hold Sell is a weekly video series produced by Livewire where two professional investors share their views on a selection of stocks
  • Centennial Asset Management's Matthew Kidman was joined by Market Matters' James Gerrish and Firetrail Investments' Blake Henricks for the top ASX-listed leaders across energy, resources, tech, healthcare and consumer discretionary.

Edited Transcript 

Matthew Kidman: Hello and welcome to the thematic discussion of Buy Hold Sell. My name's Matthew Kidman and the biannual health check of Australia's corporate scene is in. And, it's been pretty hard. A lot of investors have ridden the ups and downs, some results didn't quite make it, and they got hammered. Other results were okay, they might have just fallen a little bit. So it was a pretty tough reporting season, but we all got through it. And to help me discuss it today, we've got James Gerrish from Market Matters and Blake Hendricks from Firetrail Investments. 

Okay, I'm going to start with you, Blake. One word, one word that wraps up the reporting season?

The February reporting season was "heavy" and "sketchy" 

Blake Henricks: I'd say heavy. Business isn't easy, but at the moment, the CEOs we're talking to are telling us, "It's harder than ever." I mean, it's just really tough out there, to be honest. We're hearing companies reducing hiring intentions, we're not seeing slashing and burning yet, but they're just getting sick of trying to innovate while going back to their customers and pushing through prices. And so no one's feeling that good, everyone's a little bit nervous. Not yet a disaster, but that's how we feel. It's just a bit heavy, a bit down.

Matthew Kidman: Okay, James, we've got problems with not being able to get people, other people have got too many people, we've got inflation, we've got higher interest rates. What's one word that sums up the reporting season that isn't heavy?

James Gerrish: A huge number of challenges. I'm going to go with the word sketchy.

Matthew Kidman: Sketchy? 

James Gerrish: So sketchy is another word for patchy. There were some things that did well, and some things that didn't do so well. But also for the ones that looked good on the surface, there were a few weaknesses, a softness in the underbelly of results, and I think that is probably the main thing that I took out of this reporting season. So a really difficult one, there's no doubt about it. 

What management teams needed to get right to be successful this reporting season 

Matthew Kidman: There was a soft underbelly. And the management teams, let's concentrate on them for a second, some got it right. What were they doing right in this environment? What did they nail?

James Gerrish: I think it was a case of managing for the conditions right now, but not doing things that impacted your longer-term strategy. So, that's easier said than done. So managing all those things you just spoke about before, the labour challenges, the price increases, the supply chain issues that are still there, but not deviating too far from the strategy that's going to be the underpinning of their business growth moving forward. So, balancing those two things effectively. The management teams that did that well - big tick. There were plenty of management teams that couldn't do it well.

Matthew Kidman: It sounds simple, but hard to execute. Blake, how about you? We've got a lot of moving parts, as you said before. Those management teams that nailed it this reporting season, what did they get right? 

Blake Henricks: It's like flying a plane with three levers. So you've got the pricing one first, you needed to make sure that you were passing on inflation effectively. Not too much, but not too little either. You had to have good control of your costs because if unchecked, some of these cost bases are going to be rising high single digits. And then finally, as James talked about, I think you needed to keep innovating. And what we heard from company management was, "We keep going back to our clients once every two months asking for a price rise." And then, "Oh, and have you tried our new product?" And they're saying, "No one wants to hear about it." So the people who got those three levers right were the ones who succeeded

Top energy/utilities management teams 

Matthew Kidman: And there were a few, so let's get down into the different sectors. Let's name some companies where the management team did do what you're talking about. So let's start with energy and utilities. What's the company there that pulled some of those right levers?

Origin Energy (ASX: ORG) - Frank Calabria

Blake Henricks: Well, someone would say it's a rabbit out of the hat, but I'd say Origin. So, Origin received a bid in November last year at $9. It was a knockout bid, at a 55% premium. It was an absolute ripper. And then, the stock traded poorly as the market felt like some of the government regulations would see the bidders walk away. The bidders came back after the management team delivered two upgrades this calendar year. They went from $9 to $8.90. That was a huge win, and I think the board and management, and particularly the board who are having the interactions, should be commended for staying strong on price.

Matthew Kidman: Excellent. Okay, same question for you, James. Energy, utilities, which management team nailed it?

Worley (ASX: WOR) - Chris Ashton 

James Gerrish: I liked what Chris Ashton did at Worley. I mean, it's a complex business that they're operating at the moment - 50,000 employees globally. There are a lot of challenges surrounding that. And it's a business that operates on low margins. So you're juggling all of these different things, plus you've got this big thematic that's coming in the coming few years, which is all around decarbonisation and taking the opportunity set that's coming ahead of it. So, I think they did a really good job balancing the different ebbs and flows of the business, while still setting up wealth for the future. So, Worley was a good one for me.

Top resources management teams 

Matthew Kidman: A sector that's related - resources. Who got it right in the resources sector? And, there's a big love affair with resource stocks at the moment, so you've got to get it right.

Sandfire Resources (ASX: SFR) - Karl Simich/Brendan Harris

James Gerrish: You do and that love affair has probably come off a little bit in the last couple of months, but I think the guys at Sandfire have done pretty well over a reasonable amount of time. So, Karl Simich was the long-standing CEO there. There's a new CEO coming in very shortly, Brendan Harris. But that's been an operational turnaround story, they had a really short mine life - they've addressed that. They've had operational challenges, which when you put it up to how OZ Minerals has delivered over a long period of time, we thought that it was uninvestable. Now, it is to me. So I thought they did a good job, and they've set the business up really well for what comes next, and bullish on copper and I'm bullish on how they've improved operationally.

Matthew Kidman: Okay, here we go. Blake - resources, it's a big sector, a big area to get around, but who got it right?

Lynas Rare Earths (ASX: LYC) - Amanda Lacaze 

Blake Henricks: I think Lynas CEO Amanda Lacaze has done a very good job of navigating a very tough two years. If you look at what Lynas had to go through. COVID, recent water issues, and now political uncertainty. What I really respect the most about where the company is and what the management team have done, is the balance sheet. Sitting here, as of 31 December, it has $934 million of cash on the balance sheet. They're just under $200 million of debt out to the Japanese. And then just recently, they've raised another $200 million. So yes, there's political uncertainty at the moment, but that balance sheet is absolutely bulletproof, and I think they've set themselves up really well for whatever comes at them.

Top tech management teams 

Matthew Kidman: They've run pretty hard. Okay, let's switch sectors. Something that we all used to love and now we stay away from - tech. Who did well there? Which management team got that situation right? Because it's been a tough 12 months.

Seek (ASX: SEK) - Ian Narev

Blake Henricks: It's been a tough 12 months. And I'll pick a company that's a bit counterintuitive, because it's both tech and cyclical, and that would be Seek. So, it's had everything going against it thematically over the past six months. But what we like there is, through COVID, the company didn't harvest all the cash flows, they actually doubled down in investing, particularly in Asia, where they almost doubled the cost base in the space of two years. What that's going to mean is, inevitably as job volumes roll off, they've actually got a lot of fat in the base to be able to react to different market circumstances and hold those earnings much better than they would have if they had milked it for all it was worth.

Matthew Kidman: Okay. Tech, it's a small sector in Australia, James, but obviously some good operators. Who did you like?

Audinate (ASX: AD8) - Aidan Williams

James Gerrish: I like the hunting ground in tech at the moment. I think it's unloved. I think there are still some good stories out there. And what we have seen in the last four months or so, is that those that deliver are still performing really well. So I liked what Audinate came up with this reporting season. They dealt with the chip shortages really effectively. They had to pivot a number of times in the products they roll out, how they offer those to customers, and the explanation they're providing the customers. And it shows how sticky customers are when they react and they move in line with those challenges. So Audinate was a company that I think did really well.

Top healthcare management teams 

Matthew Kidman: Hitting the right notes to say. Okay. Another big sector that is supposed to be outside the cyclical nature is healthcare. Any company do well there that you picked up on?

CSL Limited (ASX: CSL) - Paul Perreault

Blake Henricks: I think CSL and Paul Perreault's last result. What we love as investors, is counter-cyclical investing. Typically, if you can get in just after the cycle finishes, you get a much stronger business. I think that's where CSL is going to be. They've added 30% to their collection centre footprint in the US. And as things return, we think it's going to be really well set up. One really interesting thing, I think in the market, is that Grifols, one of their key competitors, is actually really struggling at the moment. They're having to shed staff and try and make their collection centres work, whereas CSL is humming and has invested counter-cyclically. So, that's the one I'd call out.

Matthew Kidman: Okay. James. Blake's taken the biggest company in this sector. He's left you the crumbs. What have you got for us?

Ramsay Health Care (ASX: RHC) - Craig McNally

James Gerrish: There's not a lot in this sector that's interesting, and off the beaten track - I haven't found one. So, Ramsay Health Care is the one that I'm going to name. We own CSL, we think it has a great management team. But Ramsay has been juggling a lot of things. And they could have done things a little bit better, but I think they've stuck to their guns around the takeover they had on the table with KKR. It's a complex, highly regulated space. It's an international business. No doubt running that business would be really tough. So I think they've managed a challenging time pretty well, and I think they've done it while still setting themselves up for a good runway in the next 12-18 months and beyond.

Top consumer discretionary management teams

Matthew Kidman: I knew you'd find one. Now, we all love to hate this sector occasionally, it's consumer discretionary, and everyone hates this sector right now. Is there one you've picked out of the pile that looks okay, despite the consumer falling on its knees or expected to?

Wesfarmers (ASX: WES) - Rob Scott 

James Gerrish: Well, it wasn't that bad in the consumer discretionary space in this reporting season. It was patchy and I think if you rewind the tape to six to 12 months ago, everyone hated it. These stocks were on their knees and a lot of them have actually done pretty well in the last 12 months. I'm going to highlight what Rob Scott did at Wesfarmers. They've got a phenomenal balance sheet, they're obviously positioned right. They're not 100% retail, they have about 80% of their earnings driven by the retail space. So, I'm probably fudging a little bit there.

But if you think about how they've delivered - Bunnings has continued to grow at the same pace that it's been growing in recent years. Kmart is picking up some of the slack from other areas of the business that haven't been doing so well. And, they've got a really great foundation now to take advantage of what comes next. These guys are going to be buyers if things deteriorate further. I was really conscious about the retail space and nervous about it, but they've had a really good result and I think they're doing well.

Matthew Kidman: Now James has taken the big one in the industry. Something else you liked in that consumer discretionary sector - because as we said, it's not very loved at the moment.

Qantas Airways (ASX: QAN) - Alan Joyce 

Blake Henricks: For any viewers, if you've flown and lost your luggage, put your earmuffs on, because I'm going to go with Qantas. 

Matthew Kidman: It's been on a tear.

Blake Henricks: Alan Joyce has had to face so many headwinds, including everyone hating him. He probably can't get a coffee without someone throwing something at him. But if you look at what's actually happened, it's been a great performance by Qantas. They've been disciplined in terms of capacity, they've removed costs and they've traded through the hardest sector through COVID, which was airlines. So, we've got a lot of respect for him. He's probably going to take off sometime soon. I'd imagine this year. That will be a hit to the stock. As much as everyone hates him now, I think we'll look back and say he did a very good job with a very tough business.

Matthew Kidman: Well, I hope the stock doesn't crash when he takes off, as you said.

Blake Henricks: You're on fire, mate.

Matthew Kidman: That was a bounty of ideas from these heavy hitters and you could hardly call them sketchy. If you loved that show as much as me, give it a thumbs up and don't forget to subscribe to the Livewire YouTube channel, where there's lots of new content.

Created By

Buy Hold Sell

Mon 13 Mar 23, 9:24am (AEST)

Get the latest news and insights direct to your inbox

Subscribe free