Reviewing our coverage of residential developers, real estate credit providers and building materials businesses, the consistent theme is that Australia is on the cusp of a significant building boom, with record immigration levels and population growth exacerbating an already chronic housing undersupply issue. This month we add several names with leverage to this theme.
Additions: This month we add Technology One, ALS Limited, ClearView Wealth, GUD Holdings and Stanmore Resources.
Removals: This month we remove Tyro Payments and Objective Corp.
June best ideas
Technology One (TNE)
Small cap | Technology
TNE is an Enterprise Resource Planning (aka Accounting) company. It’s one of the highest quality companies on the ASX with an impressive ROE, nearly $200m of net cash and a 30-year history of growing its earnings by ~15% and its dividend ~10% per annum. As a result of its impeccable track record TNE trades on high PE. With earnings growth looking likely to accelerate towards 20% pa, we think TNE’s trading multiple is likely to expand from here.
ALS Limited
Small cap | Industrials
ALQ is the dominant global leader in geochemistry testing (>50% market share), which is highly cash generative and has little chance of being competed away. Looking forward, ALQ looks poised to benefit from margin recovery in Life Sciences, as well as a cyclical volume recovery in Commodities (exploration). Timing around the latter is less certain, though our analysis suggests this may not be too far away (3-12 months). All the while, gold and copper prices - the key lead indicators for exploration - are gathering pace.
Clearview Wealth
Small cap | Financial Services
CVW is a challenger brand in the Australian retail life insurance market (market size = ~A$10bn of in-force premiums). CVW sees its key points of differentiation as its: 1) reliable/trusted brand; 2) operational excellence (in product development, underwriting and claims management); and 3) diversified distributing network. CVW's significant multiyear Business Transformation Program has, in our view, shown clear signs of driving improved growth and profitability in recent years. We expect further benefits to flow from this program in the near term, and we see CVW's FY26 key business targets as achievable. With a robust balance sheet, and with our expectations for ~21% EPS CAGR over the next three years, we see CVW's current ~11x FY25F PE multiple as undemanding.
GUD Holdings
Large cap | Consumer Discretionary
GUD is a high-quality business with an entrenched market position in its core operations and deep growth opportunities in new markets. We view GUD’s investment case as compelling, a robust earnings base of predominantly non-discretionary products, structural industry tailwinds supporting organic growth and ongoing accretive M&A optionality. We view the ~12x multiple as undemanding given the resilient earnings and long-duration growth outlook for the business ahead.
Stanmore Resources
Small cap | Metals & Mining
SMR’s assets offer long-life cashflow leverage at solid margins to the resilient outlook for steelmaking coal prices. We’re strong believers that physical coal markets will see future cycles of “super-pricing” well above consensus expectations, supporting further periods of elevated cash flows and shareholder returns. We like SMR’s ability to pay sustainable dividends and its inventory of organic growth options into the medium term, with meaningful synergies, and which look under-recognised by the market. We see SMR as the default ASX-listed producer for pure met coal exposure. We maintain an Add and see compelling value with SMR trading at less than 0.8x P/NPV.
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