These ASX stocks were the pick of the bunch at the Pinnacle Investment Summit
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Earlier this week the Pinnacle Investment Summit was held and a number of ASX fund managers outlined the stocks they backed.
One was Marcus Burns from Spheria Asset Management and he backed one of the ASX’s newest retailers.
This company operates fashion stores aimed at millennials and Gen Z customers.
Burns labelled it “a really sound idea based on long-term thinking”.
“Over the last four or five years, it’s converted almost all the cashflow to earnings or its earnings to cashflow and vice versa. And so it ticks our boxes and it fundamentally, good business with a sound business model,” he said.
“Another reason we like the stock is because it’s incredibly immature. It only has around 66 stores currently, and their target is well over a hundred in Australia, it has no stores currently [in] New Zealand. So that gives you four or five years runway of double digit growth.”
“Not only that, they make real-time use of data to feedback their stock purchasing. Many retailers buy their stock in advance for a full 9 months, even 12 months and they get caught with out-of-fashion stock at the end of the year so they’re forced into big discounts which hits margins.
“Universal Stores has this technology where they basically reorder multiple times in-season based on what’s popular.
“So they’re selling what consumers are demanding, rather than what the buyers think they actually want to get. And they’re pushing a private label.”
“And finally, the history of the business is showing incredible outstanding like-for-like sales growth. And you can get all that for about 10 times EBIT, 10 or 11 times EBIT looking one year forward. Which we think represents outstanding value on top of the fact that it’s fundamentally a cracking business.”
Also speaking at the conference was Eleanor Swanson, from Firetrail Investments, and she picked two Kiwi stocks.
“Aroa has leveraged New Zealand’s number one asset – being sheep – in order to develop their wound care products,” she said.
Sheep’s stomachs have high strength and regeneration ability making it ideal to build wound care products, which is what Aroa does.
Aroa is also able to acquire the material at a cost lower than other biotechs would acquire their own.
It currently has five commercialised products and is eyeing off the USA – the world’s largest healthcare market.
“Aroa’s current revenue sits at NZ$25 million, and we’re forecasting that to grow at a 45% CAGR over the next five years -that implies Aroa gets 5% share of this $3 billion market,” Swanson said.
“That may seem conservative given Aroa’s products are so attractively priced and the clinical evidence is very supportive.
“However, just given they are early in their distribution strategy, we believe it’s prudent to be conservative at this stage. So as you can see, Aroa has got five commercial products in very large, addressable markets.”
Swanson also compared Aroa to its competitors, particularly PolyNovo (ASX:PNV).
“Now we don’t believe the valuation gap between Aroa and PolyNovo is justified given they’re both very attractively priced products improving patient outcomes, and they both play in very large, addressable markets.
“So we believe Aroa is a great way to get access to a company with significant growth potential but at an attractive price.”
Swanson’s other pick was in a completely different industry — travel.
“If you’ve ever had to book a work trip, you will know it can be quite painful trolling through travel websites, emailing back and forth, and you usually end your work trip with a wallet full of receipts – this is where the Zeno platform comes in,” she said.
Serko’s Zeno platform is recognised globally as the best travel management, reporting, and booking tool in the market.
“The Zeno platform is powered by artificial intelligence, and this means it’s able to suggest the most efficient route, and based off your previous preferences, suggest the most likely flight or accommodation you’d prefer.”
“In addition, all the receipts and booking trail is managed within the platform, which significantly reduces the admin.”
“If you’re one of the lucky ones and you’re already using some form of corporate travel booking system, chances are the platform is powered by Zeno. Serco’s Zeno platform has over 50% share of the Australia and New Zealand corporate travel market.”
Swanson admitted you might not know this because they partner with larger companies such as Flight Centre (ASX:FLT) and Booking.com in Europe — but this is a good thing for the company.
She said the latter was the greatest validation of the platform, especially as the deal also came with Booking.com buying 5% of Serko and sharing 50% of revenues from its European travel business with them.
“This allows Serco to leverage the very large sales teams and customer support services of these corporate travel companies, allowing Serco to grow at a very fast rate whilst maintaining very attractive margins and still allowing them to focus their capital on investing in building the best tech platform in the market,” she said.
“And as a result of this deal [with Booking.com], we’re forecasting Serco’s revenue to grow seven-fold over the next five years.”
“Serko is currently trading on three times EV to sales, and we often see this in the small cap market where investors aren’t willing to give a company credit for a global expansion strategy until they start to see it in the numbers.”
“However, given the nature of the booking.com deal with Serco, we have a strong view that there is significant growth on the horizon.”
“In fact, we’re forecasting a three- year revenue sales CAGR of 90%, and that’s relative to this peer set of an average of 30%. So we see significant upside in Serco at these levels.”