MoneyTalks: Looking for growth stocks? Here are 6 with potential
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Money Talks is Stockhead’s regular drill down into the growth stocks and sectors that investors have their eye on right now.
Today, we hear from Romano Sala Tenna, co-founder and portfolio manager at Perth-based Katana Asset Management.
Katana (ASX:KAT) is one of the few asset managers to be ASX-listed.
Speaking with Stockhead earlier this week, Sala Tenna said he was a fan of six particular stocks.
His growth stock picks ranged across different sectors from energy to intellectual property providers.
This is the company behind broker Bell Potter as well as stock platform Bell Direct.
Bell is now the largest independent retail broker in Australia. It chose to invest in its platform at a time many of its peers withdrew from retail broking due to compliance requirements.
“In our view they’re now the largest independent retail broker in Australia today, they’ve won that quite solidly,” Sala Tenna said.
“They’ve put an enormous amount of resources into building in house technology and platforms and systems.
“They’ve got 75 full time staff in IT space. No broker in Australia has anything remotely close to that.”
The company’s equity capital markets division has seen a solid year too in light of 2020’s volume of equity market deals.
“They’re now pretty much getting a position on most corporate mandates, so even if they’re not the lead broker or on the panel they’re still a go-to and still have access on retail side,” Sala Tenna declared.
Sala Tenna finally noted the company is in a solid financial position. It paid a 6.6 per cent fully-franked yielding dividend and trading at 12.5 times its earnings.
“For a growth tech stock – which is really how we see this company in some regards, obviously in the financial services area – [it’s] a really good proposition,” he said.
If you thought gold companies were certain growth stocks in 2020, Dacian is a textbook example disproving that theory.
The West Australian producer disappointed investors in 2019 with missed production targets and resource downgrades. It was forced to recapitalise in the March quarter and has lagged ever since.
Sala Tenna admits it was a big fall from grace for the company. But he says Katana has begun to buy in, thinking the only way is up.
Part of his reasoning was technical analysis which Katana uses heavily in its analysis. But the positive signs were not just technical indicators.
“Their most recent quarter under new management was very good. But the big story here is they had 100 per cent of last quarter’s production fully hedged so they missed out on great [gold] prices we’re seeing at the moment,” Sala Tenna said.
But Sala Tenna says they’ll soon be completely unhedged – rare among gold stocks.
“It goes from being a position where people are very dark on them because of their hedging to being very favourable,” he said.
“The new management has a lot of work to do but an enormous amount of money has been sunk into [Dacian’s] assets there.
“They’re probably on a PE ratio of 4 times earnings. So you’re getting rewarded for taking on that risk and that it is a turnaround play.”
Just like its peers, COVD-19 restrictions wiped out demand for Helloworld’s services.
Katana exited most of its position earlier this year but is gradually buying back in.
Given how low travel stocks sank it is arguable all travel companies are growth stocks. But Sala Tenna has several reasons why Helloworld is a standout.
“The management here is absolutely fantastic. These guys have got a lot skin in the game, they work very hard, they’ve got a great long term track record and are really hungry. They’re really out to build this business,” Sala Tenna said.
“It’s also burning a lot less cash, they’ve been proactive, they’ve done the capital raise – that’s out of the way there – and it’s huge for the recovery in travel.”
Earlier this year the oil glut was that bad, futures prices briefly went into negative territory. The fall hit almost all oil stocks including Karoon which has oil assets in Brazil – among other places.
But Sala Tenna notes Karoon are in better shape now. This is because Karoon could renegotiate its deal with Petrobas to buy the latter’s interest in the Bauna field.
“It’s absolutely fantastic because it passes the oil price risk to vendor,” he said.
“[It] enables them [Karoon] to become the fourth largest oil producer on the market in one transaction – because [it means] 15 to 16 thousand barrels per day.
“The Santos basin in Brazil is a very, very prolific oil region. And they’ve also got two discoveries – 65 million barrels of oil discoveries – next door that they’ll be able to move into to develop those assets over time.”
Sala Tenna admits the low oil price still holds them back but still thinks the deal “absolutely works” for Karoon.
“We think they’ve done one of the best transactions we’ve seen an oil and gas company do a decade,” he declared.
This company owns banks in Papua New Guinea, a region Australia’s major banks have gradually retreated from.
And Katana has began building a position thinking the majors’ loss is Kina’s gain.
“We saw ANZ exit their PNG retail operations and Kina was very well positioned to pick up these assets which they did, Westpac are now looking to exit the Pacific region,” Sala Tenna said.
“We think they’re positioned well to pick up those assets assets and build up scales and invest more in technology, branches and the like.”
Kina currently trades around five times earnings, yields over 12 per cent and has only done one capital raise.
“On that valuation [they’re] very, very cheap and with a nice thematic being they’re becoming the regional player in PNG,” he said.
“So we think there’s lots of opportunities for growth ahead of them, lots of margin expansion as they start to move up into higher margin areas.”
QANTM is one of two stocks running intellectual property services, the other being large cap IPH (ASX:IPH).
Similar to Helloworld, Sala Tenna used the term “poor cousin” to describe potential perceptions of this stock compared to IPH.
But he thinks the stock is similar to IPH – only cheaper (for now).
“It [intellectual property] is one of those areas of law that has very, very sticky long term income streams,” Sala Tenna said.
“The average client is 10-20 years. Once you do initial work on patents and IP, you’re really a long term partner.”
Sala Tenna notes QIP’s price earnings ratio is only half of IPH’s and has a solid dividend yield and balance sheet.
“We are seeing this past year has been a year of low growth and investment in the business. But we think coming out of this they’ll continue to grind 3-5 per cent per annum which the market will pay a lot for once it is confident they can achieve this,” he said.
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.