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Quality cyclicals you should own

Got your fill of yield stocks? Need some quality non-resource stocks with a bit of growth?

Here’s our short-list of candidates for the next phase of the market when everyone stampedes for the high-quality industrial companies with embedded earnings growth.

We include these stocks in our core model portfolio.

Amcor (AMC)

  • Bought Alcan packaging in 2010 at 5x EBITDA and Ball Packaging on similar multiple at the low point of the market.
  • Has extracted substantial synergy benefits from the acquisitions.
  • Has a high exposure to defensive industries such as healthcare, food and tobacco.
  • Has a growing exposure to high growth Asian markets.
  • Will benefit from a declining A$ as approximately 80% of earnings are offshore, no hedging.
  • Port Botany recycling plant in Australia will make a good contribution to local earnings.

Crown (CWN)

  • Peak capital expenditure program in Melbourne and Perth casinos has passed, will begin to benefit from increased customer and cash flow.
  • Macau investment under-appreciated and really starting to generate strong earnings contributions.
  • Further investments throughout Asia underway in the Philippines and possibly Sri Lanka.
  • Big option value in the Barangaroo development in Sydney if CWN can win government approval.
  • Has 10% of rival Echo Entertainment and approval to go to 23%, keeping a foot on EGP’s throat and a deterrent to competing bidders for EGP.

News Corporation

  • About to separate into two companies – 21st Century Fox and ‘new News’ Corporation
  • 21C Fox driven by massively strong Cable Network Programming division (incl Fox News Channel) which is undervalued by the market relative to competitors. Value uplift imminent.
  • ‘new News’ business will house underperforming Australian and UK newspaper businesses but will boast powerhouse Dow Jones business, Foxtel and Fox Sports businesses as well as net cash on separation.

Coca-Cola Amatil (CCL)

  • Recent earnings downgrade is short term and very fixable.
  • Imminent move back into premium beer market, leveraging co.’s strength in distribution and marketing. Strong partnership agreements with international brewers Grupo Modelo, Carlsberg and Molson Coors.
  • Has an under-appreciated 10-year agreement with Beam Global supporting ready-to-drink alcoholic beverages market.
  • Has excellent exposure to the high-growth Indonesian market.
  • Very strong cost-out program has made a good contribution to earnings.

If you would like to discuss these stocks or have a chat about your own portfolio, please call Kim Slater or Greg Fraser on (02) 9900 9200.

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