Australia and New Zealand Best Stock Ideas for August 2020

Australia/New Zealand Equity Research Team  |   23rd Sep 2021  |   6 min read

Morningstar’s monthly Best Stock Ideas highlights high-quality Australian and New Zealand companies, which are currently trading at discounts to our assessed fair values. The ideas, chosen from our coverage of nearly 200 companies, are intended to have broad application in a variety of equity strategies, but individuals should consider their personal investment goals and positioning before investing. We provide brief descriptions of each best idea in this report and encourage investors to read our most recent stock reports for a more detailed appraisal.

This month we have 13 companies in our Best Stock Ideas list. Since last month, we have added Bingo Industries and removed Bapcor and Spark Infrastructure.

We have added Bingo Industries to our Best Ideas List. Bingo Industries screens attractively, trading at a material discount to our fair value estimate. The economic shock delivered by the coronavirus pandemic represents a cyclical headwind for Bingo with Australian construction activity set to contract significantly in the near term. Nonetheless, we see a bright future for the narrow-moat name with strong earnings growth anticipated to return from 2022 as construction activity recovers. Importantly, we view Bingo’s balance sheet as well-positioned to withstand the gloomy near-term macroeconomic environment.

We have removed Bapcor from our Best Ideas List with shares rallying 8% since the narrow-moat company’s addition in June 2020. While shares in Bapcor continue to trade at a discount to our AUD 6.60 fair value estimate, the uplift in price has reduced the margin of safety and we see more attractive opportunities elsewhere. We continue to expect Bapcor’s earnings will prove resilient over the long term. In our view, demand for automotive spare parts—required for routine maintenance and repair of vehicles—is broadly driven by the increasing pool of vehicles and less affected by changes in discretionary income and consumer confidence. We estimate there are currently around 19 million passenger vehicles in Australia, with an average age around 10 years, and we expect the number of registered vehicles to continue growing at a low-single-digit compound annual rate over the next decade, marginally outpacing population growth.


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Originally posted 2020-08-26 10:57:16.

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