UBS: 8 ASX stocks with ‘upside risk’ heading into AGM season
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FY21 reporting season is in the books, but AGM (annual general meeting) season is in full swing.
And among ASX companies yet to hold their yearly gathering, UBS reckons there’s a number of stocks with “upside risk” once investors get the AGM updates.
An annual requirement for all listed companies, AGMs give ASX boards the opportunity to discuss operational highlights (or lowlights) in the year that was, and provide some extra context around the strategic outlook.
Final dividends are often declared at the AGM, along with a discussion of the director’s report. Shareholders also vote on matters such as directors’ remuneration.
Heading into AGM season, UBS equity strategists flagged eight stocks that could get a boost once all those extra details have been aired to the shareholder base.
By sector, their picks fell into three baskets; consumer discretionary, financials and the media:
AGM date: October 28
Upside risk: The UBS analysts are on the lookout for more positive commentary surrounding SGR’s near-term trading activity, after its Sydney casino opened its doors this month “ahead of UBS expectations for a November reopening”, they said. The easing of property restrictions in Queensland also add to a more positive outlook.
Sealink Travel Group (ASX:SLK)
AGM date: October 26
Upside risk: While SLK has an opportunity to bounce off recent lows as travel restrictions ease, UBS said a positive outlook at its AGM may not be the main catalyst for growth. Instead, the analysts said the SLK could benefit from a successful tender for the Sydney Region 9 bus contract, the announcement of which is due in “the coming weeks”.
AGM date: Yet to be announced
Upside risk: Solomon Lew’s retail conglomerate has had a strong year, rising from February lows near $20 to October levels above $30. UBS reckons more good news could be in store at its AGM with strong momentum in the UK expansion of school stationery shop Smiggle.
The analysts also pointed to heightened retail turnover in Australia as lockdowns ease, and stronger cash-flow from extra inventory sales.
AGM date: November 11
Upside risk: The share registry platform, which provides corporate trust and stock transfers, is viewed as a defensive financial asset — which could come in handy if concerns about rising inflation continue to ratchet up into November.
“Any commentary around reflation, rising rates and the normalisation of mortgage markets which would be well received” by investors, UBS said.
Medibank Private (ASX:MPL)
AGM date: November 18
Upside risk: UBS said Medibank’s AGM could provide the opportunity to offer some colour around regulatory tailwinds, stemming from federal government reforms aimed at reducing the cost of prosthetics (artificial limbs).
The reforms are expected to “introduce cost savings opportunities which could reduce industry losses”, UBS said, while potential COVID-19 savings could also be passed on.
UBS also flagged positive upside risk for media outfits Nine Entertainment (ASX:NEC) and Seven West Media (ASX:SWM), amid more positive sector conditions which increase the likelihood of more positive trading updates at their respective AGMs (November 11 and November 9).
Industrial company Sims Metal (ASX:SGM) is also a candidate for upside risk heading into its AGM (November 10), due to “the global recovery in scrap metal prices”, UBS said.
Of those eight companies, the analysts said that five of them — Sims Metal, Star Entertainment, Medibank Private, Seven West Media, and SeaLink Travel Group — have “considerably underperformed on a total return basis since their FY21 result”.
“This suggests the market could be underestimating the impact of any positive commentary at their upcoming AGMs,” UBS said.
The non-liner emergence from the pandemic across Australia and Asia was cited as a central complicating factor, particularly for JBH.
“Channel checks indicate some inventory shortages in consumer electronics (TVs) due to global supply chain disruptions”, the analysts said.
Those shortages aren’t as acute for Harvey Norman, but UBS warned investors to “remain vigilant”.
UBS also flagged downside risk for Insurance Australia Group (ASX:IAG), where the AGM could be a forum to shed more light on the company’s myriad legal problems of late.
Despite a Federal Court victory in its second business interruption test case earlier this month, the company is dealing with “multiple conduct issues and a recent lawsuit from ASIC”, UBS said.