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Quarterly blue chip ASX update – healthcare, Magellan assessed
To say the last quarter of 2021 was eventful would be an understatement. Quality continues to pay off for patient investors, as does traditional “value”-seeking behaviour. In this article, we provide a short update on some of the ASX’s most popular stocks.
| CGF – Annuity provider and fixed income manager | 4.0% | 6.0% | Challenger’s role as an essential provider of guaranteed income streams through its diverse range of annuities came into focus during the quarter after the release of the Retirement Income Covenant. The covenant will require large pension funds to offer retirement focused products, with many turning to the Challenger. Management delivered another strong report, with assets under management moving 3 per cent higher on the back of a 32 per cent increase in life annuity sales. The Fidante funds management business continues to smash expectations, reaching $108 billion in assets with strong momentum. |
| CSL – Blood treatment and healthcare | -0.9% | 3.7% | CSL’s share price struggled to keep up with the more popular, but lower-quality, cyclical and high-growth sectors that have driven the index in recent months. The company failed in its bid to be compensated for the revenue impact of US/Mexico border closures on its blood plasma collection business. Management confirmed CSL’s resilience, with single-digit profit growth to be supported by a 2 to 5 per cent increase in revenue. The company looks to be successful in acquiring Vifor Pharma for $16.4 billion, with the new addition’s speciality in treating renal diseases and iron deficiency a unique diversifier. |
| MFG – Global fund manager with $100bn in assets under management | -39.9% | 56.0% | The only way to describe Magellan’s performance is ‘disappointing’. The company suffered a significant fall from grace as sentiment turned against what was once an Australian success story. One year of underperformance resulted in the loss of the firm’s St James Park mandate, sending revenue down 13%. A turn in sentiment and jump in shorts drove the fall but the fundamentals have not changed enough to warrant a 60% fall in our view. With $100 billion in funds under management (FUM), ownership of a fast-growing investment bank, a yield exceeding 6% and a still enviable decade-long performance record, the company is deeply undervalued. |
| ORG – Diversified energy retailer and producer | 12.6% | 14.6% | Improving oil and LNG prices have “brightened the profit outlook” for this value play, showing the sector is clearly moving in the right direction. The company announced it had triggered the sale of another 10% of the APLNH project for $2.12 billion with its existing partner to take up the share. Origin will retain 27% of the important strategic asset amid the energy transition. Its investment in renewable energy group Octopus has now tripled in value in just 12 months, with the $505 million investment looking prescient as the technology edge of the company sees significant demand. |
| RHC – Private hospitals in Europe and Australia | 2.7% | 18.7% | Ramsay outperformed after bungling one acquisition but ultimately delivering the second, the purchase of Elysium Healthcare. The group specialises in mental health treatment in the UK with over 70 individual sites, coming at a cost of $1.4 billion. It marks a return to its foundations for the Ramsay group. Revenue growth remains capped by the ongoing impacts of the pandemic, with sales just 1.3 per cent higher and earnings down 30 per cent despite improving signs in both the UK and Australia. Given high vaccination rates, an impending boom in elective surgeries should provide an earnings tailwind in 2022. |
| VCX – Retail shopping centre owner | 1.2% | 11.9% | Vicinity shares were positive but underperforming as visitation to its key shopping centre assets was hit by the Delta lockdowns. Positively, this has jumped to 82 and 93 per cent in NSW and VIC, with occupancy remaining strong at 98 per cent and rent collects in cash hitting 74 per cent of 2020 levels.The end of calendar year triggered an update to the valuation of the REIT’s properties, with discount centres including DFO seeing positive valuations. All up, the portfolio increased by 2.2 per cent or $309 million with the cap rate still a reasonably conservative 5.35 per cent offering more room for further upgrades. |
| WES – Diversified retailer, Bunnings, Officeworks | 8.9% | 23.3% | Wesfarmers appears to have won the battle for Australian Pharmaceutical, owner of the Priceline chain of pharmacies, stating that it would increase its offer, and that it was the natural partner after competitor Woolworths lobbed a competing bid above the $1.55. Management highlighted robust sales at its dominant Bunnings franchise as trading exceeded pre COVID-19 conditions delivering outperformance in the quarter. This saw an earnings upgrade despite the Target and KMART businesses being the worst-hit by lockdowns. |
| WOW – Grocery and liquor retailer | -1.4% | 0.6% | Woolworths underperformed with management flagging its ‘most challenging COVID quarter” due to supply chain and staffing disruptions on the back of close contacts and isolations. Total sales were 7.8 per cent higher than the previous year, with grocery sales up 3.9 but below expectations. Management has clearly elected to wear the cost of these disruptions, which will see earnings fall $1.3 billion, rather than pass this onto customers via higher prices, ensuring continued loyalty. Online sales continue to move higher, hitting 12% of total sales but Big W saw earnings fall from $133 to just $30 million. |
