The composition of the Australian equity market at present means that around 32 per cent of the benchmark index is in financials, mainly banks which are expected to show negligible earnings growth as tighter lending standards and falling property prices slow loan growth.
Another 20 per cent of the market is exposed to other low growth domestically-focussed sectors (for example telecommunications, supermarkets, utilities) so in this environment resources stocks and companies with offshore earnings growth will need to continue to perform strongly in order to drive the Australian market higher.
Finding compelling opportunities from a valuation stand point is becoming increasingly difficult as it is a crowded trade, however, should you see short term weakness – I am a buyer. I continue to see opportunity in businesses like CSL Limited (CSL), Lend Lease (LLC), Corporate Travel Management (CTD) and Treasury Wines (TWE).
CSL's core business is the manufacture of products derived from human plasma.
It is one of the largest plasma fractionators globally, with operations in the US, Europe and Australia.
CSL collects raw plasma through a large network of collection centers, predominantly in the US, but also Germany, produces and distributes a range of vaccines and related pharmaceuticals, including seasonal flu vaccine.
Based on CSL's strategy to aggressively expand plasma centers, the company remains well placed to grow core product revenues ahead of market.
A focus on select specialty products (Haegarda, KCentra), transition to higher-margin longer-acting recombinants, and a positive mix shift within the portfolio also provide support to CSL operating margins.
LLC is a leading vertically integrated property group with operations in Australia, Asia, UK, Europe, the Middle East and North America. Operating divisions include Development, Construction and Investment Management. LLC's global development pipeline, Australian residential and construction market should drive medium-term earnings growth.
CTD is a corporate travel service provider founded in 2010 with operations in Australia & New Zealand, North America, the UK and Asia.
CTD’s business model revolves around a combination of superior client service and technology solutions to deliver return on investment and cost savings to corporate clients.
Increased global growth providing a more supportive macro backdrop for corporate travel activity.
CTD management have developed a strong track record of organic earnings growth and integrating acquisitions.
TWE is a global wine producer spun out of Foster's Group (Australia's largest brewer) in May 2011. In Jan 2016 Diageo's US/UK wine business was acquired.
TWE's brands include Penfolds, Lindeman's, Wolf Blass, Beringer, Rosemount, Wynns, Matua, Yellowglen, Chateau St Jean, Stags Leap and Gabbiano.
TWE has two growth regions (Asia and Americas) and two mature (ANZ and Europe).
Treasury Wine’s volume comes from owned and leased vineyards. TWE growth is driven by ongoing demand shift for premium wine in key markets of America and Asia, margin improvement in product mix shift and supply chain efficiencies.
CSL's core business is the manufacture of products derived from human plasma.
- This article does not take into account the investment objectives, financial situation or particular needs of any particular person. Accordingly, before acting on any advice contained in this article, you should assess whether it is appropriate in light of your own financial circumstances or contact your financial adviser. Christopher Hindmarsh is an adviser at JBWere Limited. JBWere Limited is owned by National Australia Bank Limited.