Sectors: Technology
MM has often rotated between the tech and miners since COVID largely using bonds as a guide i.e. falling bond yields are supportive of growth/tech stocks. The markets currently becoming increasingly concerned that a recession is looming which is not being helped by the ongoing banking woes in the US e.g. crude oil trading back towards its 2022 lows even as OPEC+ cuts production reflects this perfectly. We believe these worries have further to unfold hence even as we’ve started trimming our tech exposure into strength we haven’t waded aggressively back into the miners, there on the menu but not yet.
Cloud-based logistics software solutions business Wisetech Global (WTC) has continued to invest both smartly and heavily into R&D which has created a great product with compelling pricing power. In February the company announced revenue growth of 35% to $378.2mn, with our main concern being whether this can be sustained as it needs to justify a huge valuation for 2023.
MM continues to rate ALU as a quality business but it looks fully priced trading on 50x Est 2023 earnings, while the stock doesn’t report until August it wouldn’t want to miss on any level while carrying this sort of valuation.
3Q earnings have just landed with cloud computing & services driving a strong beat relative to expectations. Quarterly EPS of $US2.45 was achieved after sales increased by 7.1% to $US52.9bn, both well ahead of consensus expectations. When thinking about Microsoft, their Azure cloud-computing business is really key and a 31% increase in revenue there was very pleasing as more customers used more of the available add-ons. Shares were trading up 5.8% in after-hours trading.
We liked the cloud-based accounting platforms announcement last month as they outlined a more balanced approach to growth moving forward i.e. gone are the days of growth at any price (GAAP). This is one position we held too long when markets revalued growth stocks as rates surged higher but now we plan to be patient as a recovery ensues, ideally locking in a small profit closer to $100, or 8-10% higher.
Earlier this month online recruitment platform SEK downgraded full-year revenue guidance while maintaining FY earnings expectations showing their ability to pull the cost levers in response to softer demand for job ads. We continue to like SEK believing they are a high-quality operator, however, they’re not cheap for the growth being delivered hence we intend to continue our active approach toward this stock.
REA has embraced falling bond yields and an improving housing market over recent weeks making fresh 52-week highs in the process. This is a quality business in our opinion with the only question being around valuation with the stock trading on Est. P/E for 2023 of almost 50x while it yields ~1.2% i.e. the classic profile of a growth stock.
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Apple is a great illustration of quality stocks/companies rising to the top post the GFC, this $US2.55 trillion business still looks on track to challenge its all-time high in the $US180 region. The household name continues to deliver and innovate even as the economic backdrop challenges most businesses on several fronts.
The online car classified business executed a large $500m capital raise to fund a further stake in Brazil’s Webmotors. They bought an additional 40% stake, taking their total holding in the business to 70%, paying $353m, valuing the business on 21.7x CY22 EBITDA.
