Fund manager stock pick: GWA International Ltd (GWT) and Tabcorp Holdings Ltd (TAH)
Current share price: GWA-$3.80; Tabcorp-$15.11
Projected share price: GWA-$4.00-plus; Tabcorp-$16.00 in 12 months
Fund manager: Anton Tagliaferro, Investors Mutual
If you’re after the flush of success think toilet and bathroom fittings and fixtures manufacturer GWA International, suggests Investors Mutual director, Anton Tagliaferro.
The well-respected fund manager, who wears the crown ‘Australia’s value king’, likes stocks that may not necessarily offer exponential earnings growth but are “cheap and solid” and – with GWA dropping 20% over the past few months – Tagliaferro believes that at their current level they are good value.
GWA shares fell “for no apparent reason” according to Tagliaferro. They have fluctuated between a 52-week low of $3.28 and a high of $4.76. They are now trading at $3.80 and Tagliaferro expects them to climb to over $4.00 within a 12-month timeframe.
“In the meantime you’re getting a fully franked yield of 6%,” he says. “In the current market it’s a fairly defensive stock.”
Despite proffering the sobering view that “there are not many outstanding bargains on the share market at the moment” Tagliaferro is prepared to back Brisbane-based GWA, a 2000-employee strong, Australian owned company with diverse interests including sanitaryware designer and manufacturer Caroma Dorf, Sebel Furniture, Rover Mowers, Dux Water Heaters, Dorf Tapware, Clark Sinks and Gainsborough Hardware.
Caroma recently launched a new sustainability brand – Caroma Dorf Eco Logical Solutions aimed at addressing Australia’s water crisis.
Focusing on reducing water consumption in residential and commercial applications, Caroma Dorf now offers fully installed high efficiency solutions, specially designed retrofit products for easy upgrade, water audits and advice on lowering total bathroom water usage.
With a product portfolio including toilet suites, urinals, tapware, and showers, Caroma Dorf has a vested interest in water saving, and works closely with government bodies, water authorities, plumbing organisations and the building industry to stgelop solutions designed to save water through retrofitting initiatives.
Caroma has concentrated its R&D efforts into extending its highly successful SmartflushÆ dual flush sanitaryware and W.E.T.Æ (Water Efficient Tapware) technology into most product ranges on offer to the market. Concurrently, extensive R&D work has been undertaken by the company to ensure that all products are in compliance with the Federal Government’s WELS (Water Efficiency Labelling and Standards Scheme) that by legislation, commenced on 1 July 2006.
The company is suffering due to the building cycle, particularly in NSW.
“But that will improve and it’s coming off a low base,” says Tagliaferro pointing out that GWA is streamlining its manufacturing processes and therefore is reducing costs.
“It’s been looking for an acquisition for the last few years but it’s a very patient, disciplined company and it hasn’t found what it wants yet. “When it does I’m sure it will be value added and that will help the share price improve.”
Tagliaferro says potential risks are further falls in the housing market, which he considers unlikely given NSW is at very low levels already. The other risk is if the company overpays for an asset, which he also considers unlikely because GWA has been so disciplined to date.
In the large cap sector Tagliaferro favours the multi-faceted gambling and entertainment giant, Tabcorb Holdings Ltd.
He maintains that the horse flu, smoking bans and the tennis ban (Tennis Australia has evicted Tabcorp from the grounds of next year’s Australian Open due to reports of betting anomalies on the men’s pro circuit and claims of attempted match-fixing), all of which are influencing its share price, are temporary issues and he forecasts the current price of $15.11 rising to $16 in a year’s time.
In contrast a recent report by Goldman Sachs JBWere advises HOLD recommendations on TAH, particularly ahead of the Victorian Spring Carnival and the ongoing threat of Equine Flu entering Victoria.
Tagliaferro believes that the main risk associated with Tabcorp is linked to licence renewal. “With the Victorian licence expiring in 2012 there is risk that Tabcorp’s Victorian licences will not be renewed. This is considered unlikely; however licence conditions may change,” he says.
Defending his preference for value investment Tagliaferro chuckles. “The trend is towards exciting companies whereas value investors tend to buy out of favour good quality companies because that’s when they’re cheap. In my view, if it’s a temporary issue affecting the share price that’s exactly when to buy.”