MoneyTalks: Why real estate portal Domain is among Prime Value’s top three ASX picks
MoneyTalks is Stockhead’s regular drill down into what stocks investors are looking at right now. We’ll tap our extensive list of experts to hear what’s hot, their top picks, and what they’re looking out for.
Today we hear from Prime Value Emerging Opportunities Fund portfolio manager Richard Ivers. Richard is part of the team that won the Australian Equities Small Cap award at the 2022 Zenith Fund Awards.
Ivers said small cap industrials are bouncing around with the market and most asset classes are well above their pre-Covid levels, including commodities, house prices and even Bitcoin.
“However, small industrials stocks are one asset class below the pre-Covid high with the Small Industrials Accumulation index down around 10% from their pro-Covid level (Feb 2020),” he said.
“In contrast, mining stocks (Small Resources Accumulation) are up 45% so there are attractively priced opportunities in the Small Industrials space where the Emerging Opportunities Fund invests.”
Ivers said the trustee business has a long heritage of durability, having been founded in 1888.
“The recent acquisition of Australian Executor Trustees (AET) from Insignia (ASX:IFL) is delivering strong value accretion and there appears upside to consensus earnings estimates,” he said.
“Additionally, capital will be released, strengthening the balance sheet. Beyond the acquisition, the company is delivering strong organic revenue growth with earnings leverage about to improve, and the likely reduction/removal of losses from the UK/Ireland is also providing earnings upside.”
Ivers said a contrarian stock is Domain, which is the second largest real estate portal in Australia behind REA Group (ASX:REA).
He said DHG has halved in the past 12 months, from nearly $6/share down to ~$3 as the number of houses being listed on their website has declined.
“That bad news is well-known by the market and we take the view that the listing numbers are potentially at a cyclical low,” he said.
“With the stock having halved, there’s a great opportunity to buy a very high quality business with structural growth.”
Ivers said DHG has very strong pricing power with little incremental cost as the prices go up.
“So you get strong earnings growth and potential margin expansion,” he said.
“Its margins are about half the level of its largest peer REA Group.
“It’s also a fantastic funnel for consumers to purchase houses so is becoming increasingly valuable for the likes of mortgages and other services.”
Ivers said LAU is a potential beneficiary from the demise of major freight company Scott’s Refrigerated Logistics.
“As a major refrigerated logistics player in Australia, Lindsay stands to benefit from the removal of an apparent irrational competitor,” Ivers said.
“Its core products are largely fruit and vegetables, which are staples, and less exposed to the economic cycle.
“Its rail strategy is improving the economics of the business significantly with return on capital rising, and is not reflected in the valuation of the stock, which is still only circa PE of 8x FY24.”
The views, information, or opinions expressed in the interviews in this article are solely those of the interviewees 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.