Hi David,
I have looked at these 3 stocks individually even though they have some obvious overlap:
Soul Patts (SOL) – investment holding company SOL has corrected well over 35% from its September high, they currently hold major positions in TPG Telecom (TPG), coal miner New Hope (NHC) and Brickworks (BKW), these investments and other holdings obviously have a major influence on the underlying share price of SOL. A degree of value has obviously been restored to SOL however it is still trading above fair value in our view on an Est P/E of 17.2x versus its longer term average of 14x. We prefer the stock into further weakness towards $20.
Brickworks (BKW) – BKW has been a clear beneficiary of the strong post COVID property market but its come off the boil of late correcting over 20% from its October high. We like BKW into further weakness with our ideal entry level ~$20, or 6-7% lower. The business has been delivering over the most recent half-year with revenue up 24% to $535mn and NPAT up 269% to $330mn, performance has been enhanced by its North America operations while earnings growth has come from its joint venture with Goodman Group (GMG).
Johns Lyng Group (JLG) – there is a lot to like about the $1.56bn construction company, founder led, great track record of growth etc, however it has been struggling since we saw $13mn worth of insider selling emerge this month and a $230mn capital raise in late 2021. The stock’s fallen from a high of $9.37 to ~$6 today. My concern here is valuation. It’s a building company and aside from JLG, I can’t find any global construction companies trading anywhere near 32x earnings. The majority trade below 10x given the risky nature of operations, so for us its in the too hard basket until further notice.
At this stage we prefer BKW over SOL but only just.
