Buy Hold Sell: US Dollar Earners

Matthew Kidman: Welcome to Buy, Hold, Sell. My name is Matthew Kidman, and today we have Jeremy Bendeich from Avoca, and Shane Fitzgerald from Monash. We’re talking about companies making most of their money overseas. With the Aussie dollar under pressure and the U.S. going through the roof ... Good opportunity to talk about it. Start with you, Jeremy, the mother all of overseas earners in Australia. Macquarie Group: buy, hold or sell?

Jeremy Bendeich: It’s a hold for me, because whilst they might be a currency beneficiary, a lot of that increase in the earnings that has come from the underlying assets that they own and they’ve benefited from that yield trade ... Those asset values are possibly going to come down, and the fees associated with that might offset the currency benefit. Hold.

Matthew Kidman: They love silver doughnuts in the U.S. … Buy, hold or sell?

Shane Fitzgerald: It’s a hold for us as well. I echo Jeremy’s comment; Macquarie’s one of the world’s biggest managers of long-duration assets: infrastructure and equity investments. So backing up in bond yields has got to have an effect. More fundamentally than that, the ROE of this business is about 13%. It’s capital intensity has not changed. It’s a pretty fair value for us.

Matthew Kidman: Let’s go to slot machines, poker machines as we know them. The baby: Ainsworth: buy, hold or sell?

Shane Fitzgerald: It’s a hold for us. Actually, we recently covered a short position this one, so not not surprised I’m saying hold now. It’s been beaten up by the rampaging success of the Lightning Link product that Aristocrat has. These things have natural cycles to themselves. It’s too early to get aggressive and buy Ainsworth, but the valuation differential between it an Aristocrat, now, is extreme. Hold.

Matthew Kidman: It seems to be doing okay in the U.S., not so well here. Ainsworth: buy, hold or sell?

Jeremy Bendeich: We’ve got a buy on this one, for very similar reasons to Shane. It’s at the bottom of a cycle that is typically a mean reversion that goes on in these industries, and Aristocrat’s C.E.O. recently leaving might be a sign that Aristocrat’s peeked. The peer’s trade on that one could indicate that this is a buy.

Matthew Kidman: You love to potter around the kitchen ... Kitchen appliances ... Breville Group: buy, hold or sell?

Jeremy Bendeich: We’ve got a buy on this one. It is a big U.S. dollar market entrant. We do see the U.S. housing cycle is getting better, we see the opportunity for increased penetration in the chain, so we’re very, very positive on Breville.

Matthew Kidman: Breville seems to have taught the Americans what appliances are all about. Buy, hold or sell?

Shane Fitzgerald: It’s a buy for us as well, but we think it’s going to do a bit more work around here, as the transformation project sort of takes form, if you like. The other thing ... Another area of caution I have on Breville is, it’s selling fashion-style products, and they’re very good at it. We think they’re a top-quality retailer, but can be a little bit fickle from time to time.

Matthew Kidman: Here’s your opportunity, door’s open: Give us one overseas earner that will blow your socks off over the next 12 months.

Shane Fitzgerald: We absolutely love E-Merchants. It generates about 50% of its earning in the U.S., about 40% in Europe. This is a provider of debit cards to corporates, where they can tailor the solution to the corporate entity. The potential applications for this product is ... I wouldn’t say endless, but it is a lot. They’ve got a lot of very interesting verticals, and any one of these verticals they come off could be absolutely huge for the company.

Matthew Kidman: Okay. Jeremy, sticking with the kitchen theme, what have you got for us?

Jeremy Bendeich: Very few financials from Australia manage to grow outside of the Australian marketplace. Silver Chef has the opportunity to take a competitive advantage that it has in its rent, try, buy model for kitchen equipment and grow in Canada, and then potentially in the U.S. over quite a long time. It doesn’t have to compete on a cost-of-capital basis with those companies. It has something special, and we think that could differentiate it in the long term.

Matthew Kidman: Okay, so just because President Trump is going to get the U.S. economy wound up, it doesn’t mean that you can just buy stocks that are exposed to the U.S. and think you’re going to make money.