These are presentations from the Sohn Hearts & Minds Investment Leaders Conference in Sydney on 11 November 2016. Each high-profile portfolio manager is given 10 minutes to explain their investing strategies and include one major investible insight.
Alex Waislitz
Alex Waislitz is the Founder and Chairman of the private Thorney Investment Group, one of Australia’s most successful private investment groups. He has extensive business and capital markets experience and is Vice President of the Collingwood Football Club Limited.
Best idea: Mesoblast
Mesoblast is a world leader in innovative cellular medicines. It internationally recognised in the fields of stem cell biology, autoimmune diseases, organ transplantation, and heart failure. This company has a clear focus on addressing major health issues such as back pain, heart attacks and arthritis. It is far from a start up, and is in advanced stages of product trials to Phase 3 levels under eye of the FDA.
We have been critical of management in past and the company has experienced periods of short-selling but it is undervalued at $300 million. It has patented technology in late stage testing. Many other countries are offering support, especially Singapore which has built a tech centre around a Mesoblast facility. It has world class technology especially in reducing inflammation and rebuilding tissues.
Alex introduced Dr Silviu Itescu, the CEO of Mesoblast. His company focusses on diseases with high unmet needs and patentable technologies. It’s a high margin business with multiple products and over 700 patents across major jurisdictions.
In US alone, 6 million people suffer heart failure each year, growing at one million a year. The current trial includes over 300 patients being treated for heart conditions with potential sales in the billions. Chronic lower back pain is also producing excellent trial results.
Strategic partnerships have been established across the world and staff have excellent scientific pedigrees. In response to pressure from shareholders, cash reserves of $60 million result from reduced cash burn and better operational efficiency. Some major milestones are coming up.
Hamish Douglass (pictured on home page)
Hamish is Co-Founder, Chief Executive Officer and Chief Investment Officer of Magellan Financial Group and the Lead Portfolio Manager of Magellan’s Global Equities Strategies. Hamish was formerly Co-Head of Global Banking for Deutsche Bank AG in Australia and New Zealand.
Best idea: Apple
Apple is Magellan’s largest investment, although Doglass knows most consumer electronics companies lose their value – consider Motorola or Nokia. But in Apple’s case, the risk of commoditisation is low, as Apple is no longer a consumer electronics company and its operating system is in a duopoly with Android. Apple's platform has enormous potential to monetise many facets of the business in the future.
Replacement phones now make up 70% of phone sales, not new user phones. Selling of new iphones is almost irrelevant, but the market focusses on the quarterly numbers. The number of people owning an iphone is growing at 30% a year. It’s a predictable installed base and replacement phones. Apple will sell 220 million replacement iphones next year, even though only 42% of world’s population owns a smart phone.
99% of people who own an iphone are satisfied with it, and 95% will stay with Apple. There are high switching costs due to the downloading of aps, and there is an entire ecosystem of technology including home devices and wearables.
Apple Pay is another valuable business, already used by 17% of iphone owners, and it will be a massive part of global tap and pay.
Apple is good value as it trades at a 33% PE discount to the overall US market as it’s on a PE of 12.2 cash-adjusted. It’s a great opportunity to buy into a world class company.
Anthony Aboud
Anthony is Portfolio Manager of Perpetual's SHARE-PLUS Long-Short Fund. He has over 17 years' experience including manager and analyst roles with Perpetual, Ellerston Capital and UBS Investment Bank.
Best idea: Corporate Travel Management (ASX:CTD) - take a short position
Most travellers do their own research on travel, which has led to great success stories like Priceline and Expedia. Over 70% of land-based travel agencies have closed in recent years.
What are the differences between corporate travel and leisure? None that are significant.
CTD has risen dramatically and exceeded earnings expectations by buying businesses on low PE multiples and by some PE magic, they suddenly become worth more when valued at CTD’s multiple. But we believe these roll ups of professional services companies do not end well. Standalone, without the listed company buying, these businesses would be worth 4 times earnings. A company with earnings of $1 million should be worth $4 million but it’s suddenly worth a $20 million valuation on PE of 20.
There is a particular issue when the now cashed-up founder walks out of the company after a year or two.
CTD has been paying higher multiples and larger amounts to sustain its acquisition programme. Much of earnings come from recently businesses acquired at 9 to 10 times multiple. We also notice that senior executives have been selling the stock in last few years. Presentations are impressive marketing pitches full of positive stories, which have led to the current PE of 34.
But it’s crucial with any shorting to pick the size and timing of positions and not go all-in, as a stock can keep rising and test the resilience of the view, especially when it’s a contrarian position.
This is general information and the investments may not be suitable in many portfolios as the personal circumstances of investors are unknown. Cuffelinks accepts no responsibility for the performance of the investments and this is the author's version of the talks.