We examine our direct equity holdings recent comments at the Macquarie annual investment conference, and quarterly updates and AGMs.
A broadly positive AGM update from QBE. The all-important COR (Combined Operating Ratio) is apparently tracking well to target.
QBE point to the ongoing premium hardening cycle (a key driver of our thesis), with some of the strongest group wide growth in “many years”.
The bar for success here is low. Just a return to stable underwriting profits would be a big win. QBE provides non-bank leverage to rising rates, and has very low expectations embedded in the asset price.
CSL tabled a presentation to the Macquarie investor day conference. They key observations include an ongoing plasma collection store roll-out (more supply, which is needed to mitigate the current industry wide shortages) and operational efficiencies. The long-run-standing focus on novel theraputics to meet unmet clinical needs was reiterated, as expected.
CSL is an ultra-high quality company. It is what people have in mind when they describe “Quality” as an investment style, as an investment strategy, which we think of as a nexus between a risk premium and a factor premium. The expectations for CSL look manageable at 30x forward earnings, and if CSL is still growing at a rate of 10% at that time, will likely prove very achievable.
A good quarterly update from AMC. They upgraded earlier in the year, and have done so again. 10-14% might sound like “small change” in a market in which FMG/BHP/RIO et al are delivering near triple digit returns, but, we think is an excellent operational outcome, and to see it lifted to 14-15% is even better.
Bemis, a core part of our investment thesis, continues to deliver acquisition synergy benefits, and the post pandemic normalisation of sales, combined with operating leverage, continues to produce good earnings growth.
DXS provided a market update, noting the ongoing grinding increase in momentum across leasing activity. Rent collections, and occupancy, remain high, core parts of our investment thesis.
We continue to view DXS as a high quality commercial asset exposure, with modest market expectations.
VCX provided a market update, noting the emerging signs of recovery in foot traffic/centre visitations.
Episodic COVID related lockdowns have unsurprisingly weighed on the speed of the recovery. The key line for us, in the update, was that the March 2021 month was only a 2.3% portfolio revenue decline from 2019 levels, and that whilst foot traffic was improving, retail sales were growing at a quicker rate, implying a higher level of spend within VCX’s centres.
In a similar way to our DXS position, the key is that the valuation is markedly lower than the 2019 levels, despite the relatively modest sales differential described above.
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