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Ask A Fund Manager
In part 1 of our interview, SG Hiscock High Conviction Fund portfolio manager Hamish Tadgell told us the bank and the telco that his fund has bet on for a big year. Now in part 2, he reveals which 2 ASX stocks are set for a massive post-pandemic recovery.
Buying and selling
MF: Which stocks have you sold off in the past couple of months? The markets have been volatile since we last spoke in January.
HT: Yeah, they have. One position we've sold is Amcor CDI (ASX: AMC). We still think Amcor is a good quality business, but it's more a function that we see better opportunities in other areas at the moment.
Amcor was certainly a COVID beneficiary from pantry restocking, and it's a key supplier into packaging of foodstuffs and staples. We also just think that the outlook [is] a little bit tougher just through plastic recycling and the like, and the focus on supply chain and recycling.
At the end of the day, Amcor is making some good initiatives in terms of moving to recycling – but it is a plastics manufacturer, and we think that that will be more of a headwind than perhaps what the company is suggesting over the next number of years.
MF: What have you bought over the past couple of months?
HT: [Selling] Amcor was a bit of a switch for us into Qube Holdings Ltd (ASX: QUB). Qube Logistics is the owner of Patrick, which is the largest port operator in Australia. It also has significant exposure in the grain-handling space.
We think that the business has clearly been COVID-impacted – at the end of the day, we're an island state, we've had fewer imports coming in, fewer exports going out. As a consequence, they've seen container volumes slow, and that's impacted their business. But as the economy opens up and supply chains recover and trade recovers, and as imports start to come back into Australia, we think they will be a material beneficiary.
We also think this [year] would see very, very strong agricultural conditions and crop season that we've seen through the winter crop recently. Qube will be a beneficiary on that side as well.
The third point really is that Qube, for the last 5+ years, has been developing in Moorebank in New South Wales, an inland logistics hub. They've been developing a warehouse and intermodal train facility. Just last month, they announced that they're going to sell down that to Logos, which is an Asian logistics player.
So that's going to release a fair bit of capital and enable them to pay some debt, but will also, I think, return capital to shareholders. They focus the business back more on not being a property and logistics player but being more of a pure logistics player, and we think that we should see a re-rating on the back of that.
Why waste management is underrated
MF: What's your most underrated stock at the moment?
HT: Look, until probably a week ago, I probably would have said Cleanaway Waste Management Ltd (ASX: CWY). Cleanaway is a stock that we have known for quite a while.
We actually think that it's a COVID recovery story. Clearly, it was impacted by just lower volumes, particularly in the commercial and industrial space. Businesses doing less meant less waste to be collected. But as the economy recovers, we think that they should see volumes pick up.
But we also really like Cleanaway from the perspective that it's leveraged to… the circular economy. Taking [waste] from collection right through to recycling – they're investing at the moment in a number of energy to waste facilities and the like. With some of them [it's] going to take a few years to roll out. But we think that the thematic is very positive and should help drive the stock.
The stock has re-rated a little bit in the last few weeks as a result of talk around potentially buying some of Suez's assets. Suez is a French company that's up for sale and being bought by Veolia Environnement SA … It will be forced to sell those assets in New South Wales, and just this week, Cleanaway's come in and announced a deal around that.
The other thing which has probably been holding the stock back a little bit is the CEO transition. It was announced earlier this year that the CEO was going to resign or retire, and the company's in the process of looking for another CEO, and I guess that always creates some uncertainty.
We think that the strategy and the assets won't really change greatly. CEO is important, but we see it as more of an opportunity than anything else at the moment.
