Reducing News Corp | Adding Telstra, Integral Diagnostics, Oz Minerals
Portfolio change for Blended Australian Equities Portfolio
Reduce News Corp (NWS)
We have reduced our position in News Corp (NWS). With evidence of a slowdown in the global economy there remains an increased risk around advertising and property revenues for News Corp’s media and digital property businesses (REA & Move).
We continue to hold NWS in the portfolio given the attractive medium -term earnings profile for its digital assets (Dow Jones, REA, Move). Moreover, the timing on further steps to crystalise the significant asset value on a sum-of-the-parts basis provides valuation support for NWS.
Add Telstra (TLS)
We like the outlook for telecommunications in the event of an economic softening, where the improved industry structure in Australia has seen Telstra and Optus announce matching price rises of ~5% during July, with Telstra indexing prices to inflation amid continuing strong demand for mobile data services. This rational behaviour is encouraging for the outlook for industry returns and there are precedents in offshore markets which exhibit rational market behaviour and strong returns. Telstra trades on a one year forward EV/EBITDA multiple of 7.8 times with a forecast dividend yield of 4.1%.
Add Integral Diagnostics (IDX)
In recent months Australian healthcare volumes have been negatively impacted by a sharp rise in Covid-19 infections and a severe flu season. Integral Diagnostics (IDX) one of Australia’s largest diagnostic imaging providers pre-announced its FY22 result highlighting the severe short-term disruption that the surge in respiratory virus’s has had on elective surgery, staff shortages and patient hesitancy to receive treatment.
Nevertheless, while the timing of a recovery in volumes is uncertain, we have added to our position in IDX as the company remains well positioned to return to high-single digit earnings growth, as the number of patients waiting for medical procedures remains at unprecedented levels and longer-term demographic trends remain favourable.
Add Oz Minerals (OZL)
We have added to the existing portfolio holding of OZ Minerals. The copper price has corrected by 28% from its peak in March, on the back of downgrades to economic growth in major consumers, China, the US and Europe. The strength of the US dollar and tightening financial conditions have also weighed on commodity prices more broadly. If key economies experience a milder slowing or faster recovery than factored by the markets, there could be a substantial recovery in industrial metals. Moreover, we also see strategic merit in maintaining exposure to copper in the medium term, as the market is expected to move into a supply deficit in 2023/24. The positive medium-term outlook for copper demand as a key input to electrification led BHP to make an offer to buy OZL at $25.00, which was rejected by the Board on August 8. This is a strong signal that the outlook for copper remains robust, notwithstanding its recent price correction.