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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 hear what’s hot, their top picks, and what they’re looking out for.
Today we hear from Katana Asset Management portfolio manager Romano Salatenna.
One of the biggest themes this reporting season was cost escalation, Salatenna says.
“We saw cost escalation across the board particularly in the mining and mining services sector due to tight labour markets, higher diesel prices, and disruptions from Covid.
“Overall, most companies reported solid earnings – on the whole, it was a reasonably robust reporting season and there weren’t too many shocks.”
In the big cap space Salatenna picks Woodside, for mid-caps it’s Coronado, in the emerging space he chooses Pepper Money, and in the world of micro-caps it’s Kino Securities.
All these companies have reported big dividends and big growth in earnings, Salatenna says.
Oil and gas player Woodside is set to become the largest LNG producer in Australia once it merges with BHP, Salatenna said.
“A couple of key points about why we like their result – they announced the second highest profit on record, a net profit after tax of $1.98 billion, and an underlying NPAT of $1.62 billion.
“They also had a PER of less than 9X earnings, which for an ASX Top 20 company is a very cheap model,” he said.
WPL directors declared a final dividend of US105 cents per share (cps), bringing the full-year fully franked dividend to US135 cps.
This was underpinned by the significant increase in oil and gas prices through the year and increased trading activity to capture incremental benefit.
“The company’s strong operating revenue of just under $7 billion is almost double what it achieved in 2020,” Salatenna added.
“I also think their deal with BHP, which is set to go through in the June quarter is transformational and they are picking these assets up debt free which is important.
“If the oil price stays here, Woodside is going to generate an even bigger profit in the coming months.”
Coronado is a metallurgical coal company in the mid-cap space.
“The outlook for metallurgical coal is very exciting at the moment, there will be no transition to renewable energy without metallurgical coal,” Salatenna said.
“A wind turbine for example requires about a quarter of a million tonnes of metallurgical coal to make it.”
CRN has had a solid run after reporting its second highest dividend on record again at 12.5c per share dividend, he says.
“Most analysts did not expect it, but at the current price of $1.60 (at the time of interview), this dividend alone represents a 7.8% yield.
“They sold coal at an average price of US$138/t last financial year and at this stage they are on track to nearly double that.”
On today’s spot price of US$400/t, Salatenna says CRN is generating about 240 million cash flow per month.
“That’s an extraordinary amount,” he said.
“They have a price to free cash flow ratio of 1.5x which means they are generating their own market capitalisation in cash every 18 months – it’s a huge cash generator at the moment.
“Of course, the downside is that the coal price is highly volatile and at some point the coal price will roll over – when it does, their share price will drop too.
“But at these prices it’s trading at a P/E ratio of 1.5x earnings, for as long as the coal price is here – every day the coal price is above $400/t it’s a very good day for Coronado.”
Kina Securities is the largest wealth management business in Papua New Guinea and is listed on the ASX as well as the Port Moresby Stock Exchange under the ticker (PNGX:KSL).
“They have just reported a record dividend of 7 cents per share, which gives them an 11% dividend yield which is extraordinary for a company,” Salatenna said.
“KSL are on P/E ratio of 6.4x which people say isn’t sustainable but it’s two years in a row now they have paid out 10 cents and growing dividends prior to that.
“The underlying NPAT was up 27% and we expect there will be more to come, because Westpac, who is the second largest player in PNG, has moved to exit the market and we think Kina is well positioned to pick up a lot of that business.”
Pepper Money specialises in home loans and has mortgages in the prime space but also near prime for people who do not quite qualify for a prime mortgage.
“Out of all the companies I have mentioned during the current reporting season, Pepper Money was the standout,” he said.
“This company floated at $2.89 a share and its trading as low as $1.80/$1.90 – it lost a dollar from its IPO price less than 12 months ago so everyone was nervous about their result, but it really was a standout performance.
“Pepper is trading at P/E of 5.5x earnings and they’ve just announced a maiden dividend of 9 cents which is a cracking dividend.
“The valuations are bordering on crazy and the company has had a strong start to the new financial year.”
Salatenna says there are about four companies in the sector – AFG, Liberty, Resimac, and Pepper – and they are all trading at sub 10x earnings with yields of 6%+.
“It’s an undervalued sector and this is the best opportunity in that sector and the best result that we’ve come across this reporting season,” he said.
“They’ve got a tier one platform, fast turnaround times, they won best non-bank lender in 2021 and they’ve won best specialist lender for the last eight years in a row.”
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.
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