Experts
Money Talks is Stockhead’s regular drill down into what stocks investors are looking at right now. We’ll tap our extensive list of experts to see what’s hot, their top picks and what they’re looking out for.
Today, we hear from Tom Lambeth, co-founder of VP Capital.
Lambeth sees potential in individual stocks rather than particular sectors right now.
He says you can “find good stocks in bad sectors” and vice versa.
“I’ll give you an example, we like a stock called Galaxy Resources (ASX:GXY), which is in the lithium sector at the moment,” he told Stockhead.
“Now if you ask every smart person in town they’ll tell you that lithium is a terrible idea at the moment — it’s oversupplied, the Chinese are not buying.
“But there’s a price for that. There’s a price for everything. It’s a bad sector but the stock itself I think is a good investment.”
Worth noting here is that VP Capital currently holds a small stake in Galaxy, but is considering increasing that.
Lambeth’s top picks are a fintech, a biopharma and a gold producer.
On the list is iSIGNTHIS (ASX:ISX) – a company that helps online businesses in the AML-regulated and financial services sector better comply with the ever-increasing regulatory requirements for payments and identity verification.
The company has a market cap of just under $780m at a share price of 73.5c.
Lambeth said the iSIGNTHIS technology allows for a more efficient onboarding process.
“It’s just started to make material revenue,” he said.
“At the start of this calendar year the company started operating materially in Europe and Australia, and it’s now at the point of breakeven from a cash flow perspective and we think that the growth is big.
“They’re currently doing circa $500m of annualised transaction value. We think that could get to $2 billion pretty easily.
“From a valuation perspective that implies, on our numbers, around 20x annualised EBIT, which we think is very cheap for a company that’s growing more than 100 per cent year on year.”
It has a market cap of $313m at a share price of $1.68.
Lambeth said the global market potential for osteoarthritis treatments is “big” and Paradigm has already proven its drug works.
“The company recently successfully passed a phase 2 trial with a P score below 0.05, so this is particularly significant: ie the drug appears to work,” he said.
“Our own diligence suggests that it does, and it does indeed improve the lives and reduce pain of osteoarthritis sufferers.”
Lambeth said that globally there were “millions of people” suffering from osteoarthritis.
“Plenty of ex-AFL players have problems in their knees and their joints and this company really is poised to take advantage of this problem,” he said.
“And the valuation again is reasonable. It’s got an enterprise value of around $200m at these prices and when compared to global pharmaceutical stocks it’s cheap.
“For the stage they’re at and what they have relative to the size of the market, we think it’s a very good risk/reward return opportunity.”
His choice of gold stock is Westgold (ASX:WGX), which is already producing and has a market value of just over $700m at a share price of $1.88.
“Gold should run in cases of lower rates because in theory that stimulates inflation,” Lambeth explained.
All signals point to continued interest rate cuts, with the US Fed “jawboning” lower rates for the next couple of years, the Reserve Bank of Australia talking about cutting rates again and European Central Bank president Mario Draghi alluding to interest rates being slashed into the negative in the short-term.
“So we think it’s very bullish for gold and in particular in tier one jurisdictions like Australia, like the United States, like Canada, I think if you can buy a gold mine in those jurisdictions then it’s excellent risk/return,” Lambeth said.
“We think Westgold’s valuation is good, it’s producing, it has cash flow and a proven track record.
“Management with gold companies is particularly important because a lot can go wrong in the commissioning process.
“So you want to choose somebody that has a track record and is producing.
“We think with the gold price running, WGX is very well positioned to take advantage of that.”
Tom Lambeth has over 10 years’ experience in the investment banking sector from global investment banks Goldman Sachs and UBS, where he has worked on over $10 billion of transactions in his career. In February 2018, Tom co-founded VP Capital and has been actively managing wholesale funds since.
Mining
Mining
Mining
Get the latest Stockhead news delivered free to your inbox.
