Morgans Best Ideas: April 2021
About the author:
- Author name:
- By Andrew Tang
- Job title:
- Analyst - Equity Strategy
- Date posted:
- 06 April 2021, 7:00 AM
- Sectors Covered:
- Equity Strategy and Quant
Our best ideas are those that we think offer the highest risk-adjusted returns over a 12-month timeframe supported by a higher-than-average level of confidence. They are our most preferred sector exposures.
This month we add Dalrymple Bay Infrastructure (DBI) and Frontier Digital Ventures (FDV).
We remove Aurizon (AZJ) and Redbubble (RBL).
Best Ideas — Large caps
Aristocrat Leisure (ASX:ALL)
ALL designs, develops and distributes gaming content, platforms, including electronic gaming machines, casino management systems and digital social games. There are strong product tailwinds for ALL and it is clearly excelling in the land based arena with game content outperforming peers. Digital will continue to improve as it introduces additional content into already successful titles and we believe the company is well placed in the current environment with strong demand expected for their games.
Coles Group (ASX:COL)
While vaccines are being rolled out across Australia, we think people will continue to spend more time at home due to the risk of COVID-19 flare-ups with the working-from-home trend also likely to stay for some time. This will be beneficial for the major supermarket operators. We continue to prefer COL (~20x FY22F PE and 4% yield) over WOW (25x FY22F PE and 3% yield) mainly due to valuation.
We expect the resilience of STO's growth profile and diversified earnings base see it best placed to outperform against a backdrop of a continuing broader sector recovery. While pre-FEED, we see Dorado as likely to provide attractive growth for STO, while its recent acquisition increasing its stake in Darwin LNG has increased our confidence in Barossa's development. PNG growth meanwhile remains a riskier proposition, with the government adamant it will keep a larger share of economic rents while operator Exxon has significantly deferred growth plans across its global portfolio.
Macquarie Group (ASX:MQG)
We still see MQG as relatively inexpensive and continue to like its exposure to long-term structural growth areas such as infrastructure and renewables. Near term MQG is likely to face earnings pressures from the impact of soft economic conditions but it remains well positioned to ride out the current COVID-19 period and seize opportunities on the other side.
QBE Insurance Group (ASX:QBE)
We see QBE as likely having positive underlying momentum into next year. QBE has been putting through top-line rate increases of around 9% in 1H20, which should assist margin expansion into FY21. With QBE's balance sheet recently reset, pricing tailwinds evident and the stock relatively inexpensive trading on ~10.9x FY21F PE.
Westpac Banking Corp (ASX:WBC)
We believe WBC offers the most compelling valuation of the major banks. In terms of quality of overall risk profile, we believe WBC is a close second to CBA. On credit risk, we believe WBC is positioned relatively defensively due to its loan book being more skewed to Australian home lending.
BHP Group (ASX:BHP)
We view BHP as relatively low risk given its superior diversification relative to its major global mining peers. The spread of BHP’s operations also supplies some defence against direct COVID-19 impact on earnings contributors. While there are more leveraged plays sensitive to a global recovery scenario, we see BHP as holding an attractive combination of upside sensitivity, balance sheet strength and resilient dividend profile
Sydney Airport (ASX:SYD)
Revenues have been badly affected by COVID-19-related government travel restrictions. For the short term SYD is no longer a yield stock (we do not expect it to pay a distribution until 2022/23). It is a capital growth play. SYD remains a premier airport asset whose earnings and thus share price we think will rebound with a recovery in pax (particularly the far more valuable international pax).
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Best Ideas April 2021
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For further analysis, refer to our comprehensive Reporting Season Review where we review the key themes from the February reporting season.
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Disclaimer: The information contained in this report is provided to you by Morgans Financial Limited as general advice only, and is made without consideration of an individual's relevant personal circumstances. Morgans Financial Limited ABN 49 010 669 726, its related bodies corporate, directors and officers, employees, authorised representatives and agents (“Morgans”) do not accept any liability for any loss or damage arising from or in connection with any action taken or not taken on the basis of information contained in this report, or for any errors or omissions contained within. It is recommended that any persons who wish to act upon this report consult with their Morgans investment adviser before doing so.
Disclosure of interest: Morgans may from time to time hold an interest in any security referred to in this report and may, as principal or agent, sell such interests. Morgans may previously have acted as manager or co-manager of a public offering of any such securities. Morgans affiliates may provide or have provided banking services or corporate finance to the companies referred to in the report. The knowledge of affiliates concerning such services may not be reflected in this report. Morgans advises that it may earn brokerage, commissions, fees or other benefits and advantages, direct or indirect, in connection with the making of a recommendation or a dealing by a client in these securities. Some or all of Morgans Authorised Representatives may be remunerated wholly or partly by way of commission.