DNR Capital’s Chief Investment Officer, Jamie Nicol gives his wrap up of the recent reporting season and discusses a few stocks, where trusting in our proven investment process is more important than ever.
Yes, we’ve just finished reporting season and they delivered 26% earnings growth of a COVID-impacted year. So a very good year and one we weren’t expecting a year ago. It was much stronger than anticipated. A couple of key highlights was the dividend growth, resource companies benefiting from high iron ore prices, banks benefiting from very low bad debt charges lifted dividends which was a good boost for shareholders. I think the other key highlights was, it was interesting to see the market rotate from COVID winners to COVID losers, a lot COVID winners like Wesfarmers, Woolworths struggled to really kick on despite delivering good results in what was a good year for them.
And the market was prepared to go towards some of those stocks which had been impacted by COVID and still delivering pretty soft growth for 22. The markets prepared to look through that and start to price it off 23 and beyond. I think the other factor that we looked at was just some interesting stocks specific results. If you were a good growth stock delivering good outcomes then the market was prepared to reward that and we thought we’d talk about a couple as well.
I thought I’d contrast two stocks that delivered interesting results for us. The first one was Domino’s. Its been our biggest winner over the last couple of years and delivered very strong growth through the year. Clearly there’ve been beneficiaries from COVID, people have been staying at home eating pizzas, but the other thing that its done for them is introduce, they’ve been able to introduce themselves to customers in Japan, in Germany, in France, downloads of their apps was up substantially over the course of the year. That’s improved their profitability in those markets. They’re about to increase advertising, franchisees are making more money, they’re interested in putting more capital down to support further growth.
So you’re really looking at a company with very strong growth prospects in all of those markets and that gives you a long duration of growth long into the future. The stocks obviously had a good run and some of that future earnings growth and future share price growth has been pulled forward, but certainly delivered and I think when we look back sort of three years ago when we were buying it was in the midst of a franchisee inquiry. There was uncertainty about those offshore markets and so pricing at a deep discount. We always like to buy these quality companies when they’re trading at a discount and there’s a level of uncertainty. So we’ve done well out of that one and to contrast that stock that we’re looking at we’ve bought over the past years been computer share. And that’s a stock that has had of difficult few years. It has a lot of money that sits on cash on deposit, low interest rates hasn’t been very helpful for that. They’ve also got a mortgage business in the US which is a lower quality business.
It’s not the highest quality business in their portfolio, but it only represents about 10% of the overall value of computer share and I think it’s on a bit of a cyclical low. So as we look forward we think they’re higher quality parts of their business, the share registry business, the corporate trust business, they’ve got these businesses that produce very good cash flow, very good annuity streams and I think the market’s sort of underestimating that because its recent history’s been a little bit clouded. And as we look forward we think they can get very strong growth from just executing on their strategy and there’s an optional extra if interest rates happen to go up then that’s going to give you a very substantial boost to your profits as well.
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