Buy Hold Sell: The rivers of gold

For many years, Fairfax enjoyed its famous ‘rivers of gold’, the seemingly endless cascade of revenue pouring in from its online advertising pages. 

These 'rivers' have long since carved their own channels though, and as Matthew Kidman from Centennial Funds quips in this entertaining episode of Buy Hold Sell, ‘the rivers have turned to mighty big oceans, and it’s all gold out there’. 

To find out just how much gold you could still catch in your net, Matthew asks growth specialists Prasad Patkar from Platypus and Steven Ng from Ophir to dip their toes in the water and assess these five well-known stocks.

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Transcript

Matthew Kidman: Welcome to Buy, Hold, Sell. My name's Matthew Kidman, and today, I'm joined by Prasad Patkar from Platypus and Steven Ng from Ophir, and we are talking about the rivers of gold. That's right, Kerry Packer named them the rivers of gold, and they used to be at Fairfax. Now they're just about everywhere else, and they've prospered.

First one, real estate, REA (ASX:REA), one of the market darlings, been a bit soft the last 12 months. Prasad, what do you think? Buy, hold, or sell?

Prasad Patkar: It's a buy for us. It's a large addressable pool of revenues that they're trying to gain, and the old thematics of print-to-media shift are still playing out rather slowly in that particular segment, and they've done really well in being able to lift the market up, in terms of their depth subscription revenues as well, so we think it's a buy, and it's got a long runway in front of it.

Matthew Kidman: Stunning company that came out of nowhere, $10 billion these days. Buy, hold, or sell?

Steven Ng: It's a hold for us, Matthew. Management's having to push very hard on the price lever, during the cyclical downturn in listing. That just means it's going to be harder to beat the numbers, trading at a fair multiple. It's a hold at best for us.

Matthew Kidman: Okay, let's go to the job classifieds, all went to Seek (ASX:SEK) years ago. Seek, buy hold, or sell?

Steven Ng: That's a buy for us there, Matthew. Fantastic domestic franchise. Might face some cyclical headwinds, but look, the management team's investing for the long term in many offshore opportunities, as well as domestic and online education. It's a buy.

Matthew Kidman: So are you that bullish on Seek?

Prasad Patkar: No.

Matthew Kidman: Buy, hold, or sell?

Prasad Patkar: No, it's a sell for us. It's been five years. If you look at the history for Seek, revenues have doubled. EBITDA has doubled. NPAT is flat. That, to us, is not a growth company anymore, and it trades on a growth multiple, so it doesn't deserve that, and we think it's a sell.

Matthew Kidman: Okay. Let's get in the car. Car classifieds went to Carsales (ASX:CAR), went from Fairfax. Buy, hold, or sell?

Prasad Patkar: Carsales actually is a buy from our perspective. It was very early in monetizing the audience in a more sophisticated manner through the charge per click, and I think that has stood them really well. There's, again, a cyclical downturn that they're facing that REA has a problem with as well, but it's a buy. It's executing well.

Matthew Kidman: Steven? Carsales? It's a funny one, but it has got some tentacles around the world, as well as the domestic market. Buy, hold, or sell?

Steven Ng: It's a buy for us. Buying out the minority interests back in the Korean franchise should increase the overall offshore earnings and accelerate its growth. Trading at 20, 21 times, it's cheap versus its peers. It's a buy.

Matthew Kidman: Okay. Here's something that Fairfax actually kept a bit of: Domain (ASX:DHG). Buy, hold or sell?

Steven Ng: That's a sell for us. You don't want to own a number two player in a market that's in a cyclical decline.

Matthew Kidman: Okay. 60%, second player. There's always room for two players in a market, isn't there? Buy, hold, or sell?

Prasad Patkar: It's a sell for us as well. Poor cousin to REA and trades at the same premium that REA trades in the market, so we don't quite understand why that would deserve that premium, so it's a sell for us as well.

Matthew Kidman: Okay. Now, the new owners of the former rivers of gold, NEC, Nine Network, got some good assets, Stan and the like. Also owns newspapers now. Buy, hold, or sell?

Prasad Patkar: Yeah, that's a sell as well for us because the jewel in the NEC crown is Domain, and if you don't want to own Domain, then I don't think you want to own the rest of the Nine portfolio, and again, it trades not particularly cheaply, considering the structural headwinds that some of their assets face, so we think if you really want to pay 12 times for a structurally challenged business, you can buy a bank.

Matthew Kidman: No one under 40 reads newspapers, watches free-to-air television. What is there in NEC? Is it buy, hold, or sell?

Steven Ng: It's a hold. While there's some pressures there on Domain, in terms of a valuation, we think it's made up for by Stan and the ability for management to cut out the costs in the merger between Nine and Fairfax. It's a hold.

Matthew Kidman: The rivers have turned into a mighty big ocean, and it's all gold out there.