MoneyTalks: Why Martin Currie's backing Telstra to ride out an inflation storm

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 Martin Currie Australia CIO Reece Birtles.

What’s hot right now?

For Birtles it’s all about value right now with inflation running hot and a rising interest rate environment. Inflation is 7.3% over the year to September. Trimmed-mean inflation, the RBA’s preferred measure that trims away large price movements, rose 1.8% in the quarter and 6.1% annually.

The current official cash rate is 2.85%, having risen 2.75% in the past seven months.

“Despite the recent reporting season confirming that for many companies sales are continuing to hold firm, profit margins are being squeezed by cost pressures coming in from all angles,” Birtles said.

“Inflation and supply chain issues are driving higher input costs, interest rates are up, labour shortages are inflating wage costs and creating disruptions, and energy is expensive.”

“We are hearing mixed comments about the inability of companies to pass the costs on to the end user.”

He said at this stage of the game it’s all about identifying high-quality and attractively valued stocks that can manage the risk of rising inflation in this environment.

Top picks

QBE Insurance Group (ASX:QBE)

Birtles said QBE is a reflation beneficiary with strong pricing power as insurance is a sticky spend and their investment portfolio earnings clearly benefit from higher short term interest rates.

“It also has an improving track record of providing insurance on a sustainable basis, with good risk mitigation systems and processes, and is taking advantage of strong global conditions for pricing,” he said.

Online retail company Kogan (ASX:KGN) has relaunched its home, motor and compulsory third party (CTP) insurance offerings in partnership with QBE.

The QBE share price is up ~11% in the past year and ~8.5% in the past month.

Aurizon Holdings (ASX:AZJ)

Birtles said Australia’s largest rail freight operator, has inflation-linked revenues and an inflation-linked regulated asset base which puts the company in a strong position to face ongoing economic volatility.

“The markets EPS and DPS growth forecasts for FY24 appear conservative and we expect to see market upgrades to occur as the network regulatory reset gets closer and the in-built inflation linkages become clearer to the market,” he said.

AZJ reported softer than expected FY22 results with an EBITDA -1% on pcp and a H2 FY22 dividend per share of 10.9 cents/share, down 24% on pcp, 100% franking.

The AZJ share price is up ~7.5% in the past year and 5% over the month.

Telstra (ASX:TLS)

Birtles said the telco has been able to push through higher pricing on its mobile plans, and competitors have all followed suit, and this has limited switching risk.

“We also see Telstra as attractively priced, with an attractive dividend yield, which is well supported by cash flows and productivity improvements,” he said.

“The T22 strategy has reset the business to be a much leaner and digitally-enabled business to enable earnings growth.”

Telstra could also be a beneficiary of the Federal Government budget with a planned spend of $2.4 billion to extend fibre access to 1.5 million households.

QBE, AZJ & TLS share price today:

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.