Wilson Asset Management sees post-COVID reopening as intriguing inflection point; backs these ASX stocks
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Wilson Asset Management says the post-COVID reopening is drawing nearer and there are ASX stocks that represent ways to play this.
The fund manager told investors at a webinar earlier this week that it saw this inflection point coming in “1-2 months”.
“That’s largely because despite the fact we’ve seen cases in NSW and Vic go to very high levels, we are getting vaccinated very quickly and faster than anyone had actually previously thought,” said Wilson portfolio manager Oscar Oberg.
“We do see reopening of borders as likely coming into Christmas and we’ve positioned the portfolio accordingly.
“We have quite high exposure in sectors such as tourism, construction, building materials and these are the sectors that have been impacted the most by the Sydney and Melbourne lockdowns.
“We’ve sold down a lot of exposures in more defensive or COVID beneficiary sectors such technology, healthcare, ecommerce and also selected retail stocks.”
Stockhead’s Sydney and Melbourne readers might be forgiven for thinking seeing is believing so far as the lifting of lockdowns go but Oberg said a hint could be taken from the Northern Hemisphere, not just that it would happen, but which companies would succeed.
He says the interim results from the Pfizer vaccine trials in November last year marked a turning point for several stocks of Wilson – many performed well in the two recent reporting periods.
“We were really focused on the USA and UK – because two regions were worst hit by the coronavirus and were accelerating their vaccine rollout,” Oberg noted.
“We looked at companies like Virgin Money (ASX:VUK), Pendle (ASX:PDL), Reliance (ASX:RWC) and City Chic (ASX:CCX) and these companies did well for us over Feb reporting season and continued on really through to the August reporting season,” he said.
Wilson’s analysts went on to give one ASX stock each that they were backing and most fitted into this category, although not all would be immediately obvious as a post-COVID reopening opportunity.
Shaun Weick backed IPH (ASX:IPH) which is an IP services group.
“We originally invested in IPH in 2014 with $2.10 per share with the key attraction being consolidation of the mature Australia and New Zealand market while the company was expanding into high growth Asian markets,” he said.
“The stock was trading at $10.50 at onset of the pandemic and was sold off over concerns of slowdown of global patents.
“We began re-accumulating in May of this year at around $6.50 per share with our research pointing to a rebound in R&D spend which we expect to support an uptick in patent filing trends alone with an easing in US currency headwinds.
“In recent presentations management have highlighted a desire to pursue further acquisitions, this time targeting new secondary markets like Canada which provides a potential near term catalyst for the business.
“IPH management team are very well regarded, they’ve got a proven track record of pursuing earnings accretive acquisitions and extracting significant synergies.
“We believe an acquisition in Canada would enable them to replicate success in the ANZ region and consolidate the market that is approximately 1.3 times larger than Australia.
“We think the stock has 15% upside on current fundamentals before acquisitions are considered.”
Sam Koch meanwhile backed Swoop (ASX:SWP) – a fixed wireless telco provider.
Swoop competes with the NBN by offering greater speed and service in certain areas.
“They’re rapidly developing a full service operation which results in a greater utilisation of our network and really underpins our estimates of 10-15% organic growth and 1-2% margin expansion over new few years.
“We liken it to a mini Uniti Group (ASX:UWL) which has market cap of $3 billion and Swoop is only $300m at this stage.
“The catalyst is deploying their balance sheet into accretive acquisitions in a highly fragmented market.”
The next analyst was Tobias Yao who is known for being an early backer of Afterpay (ASX:APT).
He admitted his ASX stock pick might not be as rewarding as the BNPL giant turned out to be but could still be a worthy post-COVID reopening trade.
His pick was leisure venue operator Ardent Leisure (ASX:ALG), a stock that did well in the recent reporting season.
“We still believe there’s further upside driven in Ardent Leisure by continued momentum in US with their Main Event entertainment centres which are going very strong – July and August this year they’re doing same store sales growth more than 25% versus FY19 in a pre-COVID environment,” Yao said.
“Over the next six months, like with all our reopening trades, we believe domestic tourism will flourish which will benefit its Australian assets being Dreamworld and Skypoint and hopefully before Christmas.
“We think this business can continue to earn earnings upgrades over time and sum of parts valuation continues to be appealing and there’s a 40% upside to current share price.”
Oscar Oberg also picked a venue operator as a post-COVID re-opening trade in Event Entertainment (ASX:EVT), a stock that has a portfolio including Rydges hotels, the Thredbo ski resort and Event Cinemas.
Oberg says Wilson first bought in during May 2020 and while it could’ve sold out when lockdowns began, opted to hold on after looking at Event’s balance sheet and anticipating a re-valuation of its properties.
“We think this business will have a materially lower cost base going forward and we think will earn more money than it did pre-COVID for its operating businesses,” he said.
“We’re very bullish on those stocks, we think it can get $20 per share which is around 30% upside.”
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