Money Talks: John So says these are the travel, retail, and energy stocks to keep an eye on as trade reopens
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MoneyTalks is Stockhead’s regular recap of the ASX stocks, sectors and trends that fund managers and analysts are looking at right now.
Today, we hear from John So, co-founder and portfolio manager at VP Capital who is focused on stocks in a range of sectors who could benefit from re-opening trade.
My first pick is Helloworld, a travel agency business,” So said.
“If you look around on the ASX a lot of similar businesses have recovered past their pre COVID valuations.
“It can be a bit deceiving because their share price can be lower in these companies, but the share capital has actually expanded significantly because they’ve undertaken capital raisings during this period.
“Helloworld is probably one of the very few that is still substantially below its pre COVID valuations.
“Not withstanding some of them may have an advantage for example getting corporate travel ahead of consumer travel – there’s really no reason why in the medium year and a half to two-year term that a company like Hello World is trading over 40% below its pre card valuations when some of these others companies have already surpassed their pre-Covid valuations.”
So also said the company’s cash burn, including its capital expenditure, is around $2 million cash per month.
“If you strip out some government grants like Job Keeper that it’s received in the past, maybe the burden is slightly higher at $3 million a month or so,” he said.
“But even over two years, that really only amounts to around $70 million, and they have over $100 million cash on hand.
“So, they’re in a very strong position to ride out this whole period.
“We’ve seen the share price re-rate already from around $1.50 to $2.50 in the past few months, but I think there’s still a lot of upside in the stock for reopening trade.”
So’s second pick is still linked to reopening trade, but in the oil sector – namely Karoon Energy.
“Generally all the stocks obviously having a very strong re-rating because the oil price is now closing in on $80 a barrel,” he said.
“The question is whether that price is sustainable, and I think it partly pertains to a potential spike in demand coming up as economies reopen, as shipping as international freight all reopen.
“And obviously, you have Hurricane Ida in the Gulf of Mexico which has disrupted the supply price significantly and combine that with a potential three months near term demand shock as these economies reopen, and borders reopen, I think the oil price is sustainable.
So said this leads to the question of how these oil companies will fare, considering very few have re-rated as significantly as the oil price has – which is probably because a lot of capital is moving away from fossil fuels towards clean energy.
“In the near term, if you look at what some of these companies are trading at from a cash flow, multiple perspective, a company like Karoon at about $80 a barrel is really trading at around three to four times cash flow with the relatively low cost of production,” he said.
“So, I think it will continue to benefit from a combination of reopening driven demand, sustainable oil prices – at least in the short term in the next six months.
“And I think before OPEC potentially does anything – probably sometime in the next year – and you’d want keep an eye out for that and look to exit by the time, or ahead of any movements with OPEC increasing in supply.”
So’s third pick is Retail Food Group who own a large staple of brands that are very well recognised in Australia like Brumbies Donut King, and Coffee Club.
“The stock has been around on the market for a very a long time, it’s been besieged by a variety of problems, including an excessive amount of franchises a few years ago, which were cannibalizing each other,” he said.
“After the recapitalisation a little bit before COVID, it already cleaned up its balance sheet and was about to turn a new page in its outlook.
“Then COVID came along and as you can imagine, a lot of these franchisees or company operated shops are not open especially in states like New South Wales and Victoria and the languishing share price reflects that.
He said he expects to see a lot of pent-up demand once the reopening occurs.
“The other thing I like about Retail Foot Group’s brands it that they’re very domestically oriented,” So said.
“A lot of them are in suburban areas in shopping centres that probably rely less on international tourists or students coming in, and more so on just on domestic families going back out and spending.
“I think that’s another stock to watch as part of the reopening trade.”
The views, information, or opinions expressed in the interviews in this article are solely those of the interviewee and do not represent the views of Stockhead.
Stockhead does not provide, endorse, or otherwise assume responsibility for any financial product advice contained in this article.