Fund Managers' Best Performing Stocks
We asked 10 of Australia's best Fund Managers:
What have been your best performers in 2022 and why? Do you still own them?
Here's what they said:
Our top performers in 2022 were coal producers Whitehaven Coal (WHC) and New Hope Corp (NHC). The thermal coal price rallied from US$120/ton to over US$420/ton due to the combination of the structural underinvestment in the coal sector over the past decade and the significant increase in demand from Europe following Russia’s invasion of the Ukraine.
WHC for the most part of the year was trading on less than a 3x PE, and actually de-rated through the year as its earnings continued to increase. At $400/ton, the company was generating approximately $1bn in cashflow a quarter, and as a result implemented a buyback to repurchase 25% of the company shares.
NHC has benefitted from similar commodity tailwinds and will increase production at the Acland 3 project, which has now been approved after many years of government deliberation. This project will increase its overall production profile by 33%. NHC also implemented an on market buy back and is in addition paying large fully franked dividends – an approximate 20% yield at the current share price. In November, the thermal coal price fell from $420/ton to $300/ton, and as a result the equities fell nearly 30%.
True to our process, we began scaling out of these positions as the stocks rolled over. We are now assessing whether the longer-term remains intact or broken and will scale the size of these positions as required. These positions are still relatively large positions for the fund at the time of writing.
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Our best performers in 2022 have been AMP Limited (AMP), NRW Holdings (NWH) and Webjet (WEB).
Alexis George, the new CEO at AMP, has done an impressive job divesting non-core assets, implementing capital management initiatives, and returning the business to growth through their advice, platform and banking divisions. The share price has subsequently outperformed, as the market is starting to appreciate the inherent value within the remaining divisions. We’re still shareholders and remain positive on the outlook for the business.
NWH’s strong FY22 result and share price outperformance was driven by a record order book, improving margins and high cashflow conversion, as high commodity prices supported miners’ production profiles and labour constraints incrementally eased. Their result and subsequent share price performance is emblematic of the mining services sector as a whole, which is emerging from a period of cost headwinds, as labour availability improves and cost inflation eases. We remain shareholders and are still positive on the outlook for the business, noting the positive backdrop for contract wins, improving margin profile, optionality afforded by a strong balance sheet and attractive valuation.
WEB bucked the trend in 2022, outperforming the market and the rest of the travel sector, in a large part driven by a strong 1H23 result that beat analyst expectations. The result was a reflection of the market share growth they’ve achieved in the B2B division and the cost discipline they’ve demonstrated across the business. We are still shareholders and remain positive on the outlook for the business.
Centennial’s best performers in 2022 has been at the bigger end of the share market. Typically, we are a small company investor but luckily, we do have the ability to invest in the top end of the market if we think there are opportunities. Among the winners have been AMP (AMP), Technology One (TNE), Qantas (QAN), and QBE Insurance (QBE). At the smaller end we have done well out of PSC Insurance (PSC), Lycopodium (LYL), SRG Global (SRG), Myer (MYR) and Next Ed (NXD). We still own many of these stocks but have sold all or some of our holdings in three of them.
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We were fortunate to benefit from takeovers of NBN-competitor Uniti Group (UWL) and aerial image provider Nearmap (NEA). Other winners included IT business Data#3 (DTL) and Graincorp (GNC).
PWR Holdings (PWH) – Quality company with real growth and a strong market niche. Still owned, demand remains strong, stalled (due to covid) OEM programs coming back online, continues to expand production capacity and the range of products it offers.
Karoon Energy (KAR) – Meaningful increases in oil production from investment in existing assets, favourable pricing, came off low valuation. With production still increasing, underinvestment in global supply bodes well for pricing longer term.
Our better performers over the last 12 months included Mineral Resources (MIN) which benefited from its lithium and to a lesser degree iron ore exposure.
Atturra (ATA), the IT consultant, listed during the year at a compelling valuation and has delivered on its early expectations; and Auckland International Airports (AIA) which is seeing a positive return to passenger volumes. We continue to own all three.
For us, fundamentally the best performing stock has been gaming developer Playside Studios (PLY). In the past 12 months they’ve inked deals with Activision Blizzard, Meta/Facebook, Netflix and written over $8m in revenue through an NFT launch. Despite all these value-accretive deals - and revenue in FY22 rising 170% to almost $30m - the stock has slipped about 20% in the past year, showing the extent of the sentiment change against technology stocks. Given the traction this local developer is gaining on the world stage, we’re very happy to continue to hold the shares.
Our best performer was aircraft engine maintenance provider PTB Group (PTB), which started the year at $1.00, and received a takeover bid from a US competitor in August at $1.62. We have also benefitted during the second half of the year from other takeover activity in holdings, including Proptech (PTG) and Nearmap (NEA). Outside of takeover bids, better performers included cold storage medical logistics company Cryosite (CTE), which had a strong year of growth and reinstated its dividend, and education providers Academies Australasia (AKG) and EDU Holdings (EDU).
Derivative hedges (short positions) on S&P500 – still have these in place. Tassal Group (TGR) – we spotted the strategic value and the early transactions resulting in takeover. Similarly with Manchester United PLC (NYSE:MANU). We have an increased emphasis in Australia for companies with a global business which would be attractive to an overseas predator. We bought a basket of US financials in September which proved adroit timing; we still hold them all.
The big money we’ve been making as a house has been on lithium and uranium/ nuclear, which draws off our mining analyst’s expertise, Peter Chilton. We’ve been making big returns on Pilbara Minerals (PLS), up 1340% over the past two years. Lake Resources (LKE) is going well behind, up 169% in just over a year. Flagbearer uranium stock Paladin Energy (PDN) is up 70% in the past 18 months or so.
Gold has been in the doldrums, but Evolution Mining (EVN) remains a top performer and some of our mining services plays are really hitting their straps. SRG Global (SRG) has returned 40% in the past year and GRG Engineering (GNG) has made us 45% a year for the past 3 years.
Ship building contractor Austal (ASB), has been bouncing and has returned 300% since we first tipped it.
Some of the portfolio’s strong performers have been stocks exposed to industrial and commercial demand. Other stocks which we were able to acquire at close to maximum distress point in the middle of the year recovered sharply as the fears of catastrophic outcomes receded, before flatlining towards the end of the year, but are still up to 50% higher. Some of the big performers include Clover (CLV), returning 346% since we tipped it; Infomedia (IFM) has returned 277%.
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