Originally published by UBS Asset Management
Insurance Australia Group Ltd (AX:IAG)
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Yet to report but share price depressed by Suncorp (AX:SUN) and AMP (AX:AMP), despite former having positive read through and latter minimal operational overlap.
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We expect the result to signal the beginning of a multi-year cash earnings growth story as the industry cycle normalises lifting premiums and margins as the company focuses on claims inflation.
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The general insurance industry is our highest conviction overweight with research via various industry players confirming the irresistible momentum.
AMP Ltd (AX:AMP)
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Finally met expectations and displayed some operational stability.
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Far inferior companies that similarly satisfied forecasts after challenging periods, have seen re-ratings to multiples 35% above AMP's.
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Unfortunately defeat was snatched from the jaws of victory when management under-delivered on capital management expectations.
Tabcorp Holdings Ltd (AX:TAH)
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Met guidance although weakness in peripheral businesses distracted from core operating strength.
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Lack of sell side coverage (due to Tatts transaction restrictions) ensured focus on historic competitive pressures.
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Selling by large shareholders also weighed on the price.
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Company remains a well-managed, defensive and strong cash flow business.
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Earnings growth from current one-off depressed levels and major catalysts (Tatts (AX:TTS) and regulation) materially bias outlook to the upside.
Oil Search Ltd (AX:OSH)
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Yet to report but sector refuses to budge even after the underlying commodity has bounced 15% off lows.
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Despite delays, certainty of growth options off a cost base amongst the lowest in the world, provides low risk exposure to a uniquely suppressed commodity.
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Peaking rig additions, capex and inventories are encouraging.
Link Administration Holdings Ltd (AX:LNK)
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Yet to report
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No change to thesis focused on massive low cost and large scale operating leverage to secular super fund consolidation.
Caltex Australia Ltd (AX:CTX)
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Yet to report
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No change to thesis of multiple earnings drivers for this neglected and misunderstood company.
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While technology is a longer term risk, mix shift is an offset near term and regulatory risk around acquisitions favours the company.
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Management are pro-actively exploiting their infrastructure footprint with impressive initial retail results and potentially 20% upside.
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Operating simplification and absorption of underperforming franchises offers another 10%.
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Recent transactions for similar sites in the US occurred at 13x EV/EBITDA compared to Caltex (AX:CTX) at 7.5x.
James Hardie Industries (AX:JHX)
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Ongoing plant issues pressured manufacturing costs and conceded volumes, which disappointed investors conditioned to more rapid recovery from operational challenges.
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Near term earnings were downgraded as time to correct these problems were extended.
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We retain our trust in management given their transparency.
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Conviction only slightly tempered given recent turnover at time requiring management focus.
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Product superiority remains unchallenged in market normalising from depressed levels.
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Remains a high conviction position.