Originally published by UBS Asset Management
Insurance Australia Group Ltd (AX:IAG)
Yet to report but share price depressed by Suncorp (AX:SUN) and AMP (AX:AMP), despite former having positive read through and latter minimal operational overlap.
We expect the result to signal the beginning of a multi-year cash earnings growth story as the industry cycle normalises lifting premiums and margins as the company focuses on claims inflation.
The general insurance industry is our highest conviction overweight with research via various industry players confirming the irresistible momentum.
AMP Ltd (AX:AMP)
Finally met expectations and displayed some operational stability.
Far inferior companies that similarly satisfied forecasts after challenging periods, have seen re-ratings to multiples 35% above AMP's.
Unfortunately defeat was snatched from the jaws of victory when management under-delivered on capital management expectations.
Tabcorp Holdings Ltd (AX:TAH)
Met guidance although weakness in peripheral businesses distracted from core operating strength.
Lack of sell side coverage (due to Tatts transaction restrictions) ensured focus on historic competitive pressures.
Selling by large shareholders also weighed on the price.
Company remains a well-managed, defensive and strong cash flow business.
Earnings growth from current one-off depressed levels and major catalysts (Tatts (AX:TTS) and regulation) materially bias outlook to the upside.
Oil Search Ltd (AX:OSH)
Yet to report but sector refuses to budge even after the underlying commodity has bounced 15% off lows.
Despite delays, certainty of growth options off a cost base amongst the lowest in the world, provides low risk exposure to a uniquely suppressed commodity.
Peaking rig additions, capex and inventories are encouraging.
Link Administration Holdings Ltd (AX:LNK)
Yet to report
No change to thesis focused on massive low cost and large scale operating leverage to secular super fund consolidation.
Caltex Australia Ltd (AX:CTX)
Yet to report
No change to thesis of multiple earnings drivers for this neglected and misunderstood company.
While technology is a longer term risk, mix shift is an offset near term and regulatory risk around acquisitions favours the company.
Management are pro-actively exploiting their infrastructure footprint with impressive initial retail results and potentially 20% upside.
Operating simplification and absorption of underperforming franchises offers another 10%.
Recent transactions for similar sites in the US occurred at 13x EV/EBITDA compared to Caltex (AX:CTX) at 7.5x.
James Hardie Industries (AX:JHX)
Ongoing plant issues pressured manufacturing costs and conceded volumes, which disappointed investors conditioned to more rapid recovery from operational challenges.
Near term earnings were downgraded as time to correct these problems were extended.
We retain our trust in management given their transparency.
Conviction only slightly tempered given recent turnover at time requiring management focus.
Product superiority remains unchallenged in market normalising from depressed levels.
Remains a high conviction position.