I think I’ve been good – mostly – in 2023, and I am confident that Santa Claus has me on his list. And here are the four stocks that I’ve requested, in my Christmas letter to the big fellow.
- CSL (CSL, $281.09)
Market capitalisation: $135.8 billion
12-month total return: –1.3%
3-year total return: 0.3% a year
Forecast FY24 dividend yield: 1.4%, 5.5% franked (grossed-up, 1.4%)
Analysts’ consensus target price: $314.37 (Stock Doctor/Refinitiv, 17 analysts)
I wanted to see CSL in my Christmas stocking last year, and I’m looking for it again next week. CSL is a true global leader, the world’s largest maker of plasma-based therapies, a global leader in treatments for immunodeficiency and bleeding diseases such as haemophilia, and one of the world’s biggest suppliers of flu vaccines.
It is organised into three businesses:
- CSL Behring is a global biotech leader with a broad range of biotherapies for rare and serious diseases including bleeding disorders, immunodeficiencies, hereditary angioedema, neurological disorders and Alpha 1 Antitrypsin Deficiency. CSL Behring manufactures its therapies from plasma collected by CSL Plasma, which operates one of the world’s largest and most sophisticated plasma collection networks, with more than 300 plasma collection centres in the US, Europe and China. CSL Behring sells its therapies in more than 100 countries.
- CSL Seqirus: one of the world’s largest influenza vaccine companies, and producer of antivenoms. CSL Seqirus operates state-of-the-art manufacturing facilities in three different continents and a globally integrated supply chain for the timely supply of influenza vaccine to customers around the world.
- CSL Vifor is a global leader in iron deficiency and nephrology and is committed to launching the next generation of therapies to truly address the full spectrum of kidney disease, with a focus on dialysis and rare disease.
Each of these businesses is globally competitive, if not market leader, meaning that its revenue and profit streams are diversified and defensive. But, CSL also has growth prospects, with a huge R&D pipeline (it spends $1.2 billion a year on R&D) that leverages the company’s expertise in plasma protein technology, recombinant technology, cell and gene therapy and vaccines technology to develop and deliver innovative medicines that address unmet medical needs or enhance current treatments in six main therapeutic areas: immunology, haematology, respiratory, cardiovascular and metabolic, transplant and vaccines.
CSL has compelling long-term tailwinds and is a very well-managed company. It is steadily growing its dividend stream; and it usually under-promises and over-delivers when it comes to profit. Quite simply, it is a great stock, although not perfect – the market still has plenty of queries about the Vifor integration. But I want Santa to bring me more CSL.
- Helloworld Travel (HLO, $2.42)
Market capitalisation: $390 million
12-month total return: 81.3%
3-year total return: 2.5% a year
Forecast FY24 dividend yield: 5.4%, fully franked (grossed-up, 7.7%)
Analysts’ consensus target price: $3.78 (Stock Doctor/Refinitiv, five analysts)
A small-cap stock that I’d like to see in my stocking is Helloworld, one of the country’s largest travel agencies, operating in the retail, wholesale, inbound travel and freight (entertainment logistics) sectors. It is one of the country’s largest operators of travel agencies, with about 5% of the retail market.
As a stock that is mostly exposed to inbound and outbound travel to/from Australia and New Zealand, Helloworld was pounded by the COVID slump, slipping to a net loss in both FY21 and FY22. But it surged back into the black in FY23, as the travel market rebounded, a trajectory that was well-flagged along the way – the company upgraded its EBITDA (earnings before interest, tax, depreciation and amortisation) guidance three times. Total transaction volume (TTV) rocketed 138.5% higher, to $2.6 billion; sales revenue surged 153%, to $160.9 million; and the EBITDA margin was a spectacular 26.6%, which is actually six percentage points higher (up 29%) than the pre-COVID (that is, FY19) level.
By the final month of the financial year, June 2023, Helloworld’s total transaction volume (TTV) was running at $310 million, its highest level since 2019 on a like-for-like basis.
Even better, HLO forecasts an operating profit (underlying EBITDA, or of $64 million–$72 million for FY24, “subject to no materially adverse impacts on our business,” which if borne out would represent an increase of up to 63%.
And remember, this is with international airline and cruise-ship capacity in the Australia/New Zealand market not having fully recovered: Helloworld does not expect travel volumes and revenues to return to pre- COVID-19 levels until FY25.
HLO shares fell 83% from the pre-COVID price of $4.92 to the low point of 85 cents, but it has recovered strongly – and analysts think there is plenty more scope for improvement. On analysts’ expectations it looks to be offering an attractive fully franked yield, as well.
- IDP Education (IEL, $20.68)
Market capitalisation: $5.7 billion
12-month total return: –25.2%
3-year total return: 2.7% a year
Forecast FY24 dividend yield: 2.2%, 21% franked (grossed-up, 2.4%)
Analysts’ consensus target price: $27.87 (Stock Doctor/Refinitiv, 13 analysts)
IDP Education is one of the largest global providers of ‘high stakes’ English language testing and student placement (SP) services, as well as operating English-language teaching schools. IDP is a one-third co-owner of IELTS, the world’s largest ‘high stakes’ English proficiency test, and is the largest student placement agent in Australia, with a market share of about 23%. The company also places students into the UK, Canada, New Zealand and the US. IDP Education has benefited hugely in recent years from increased demand for migration and education in English-speaking destinations, particularly out of Asia, a region that generates 85% of IDP’s earnings.
The major revenue drivers are English-language testing (56% of revenue) and student placement (36% of revenue). Both businesses have a very strong reputation and global presence; and demand for international education has proven to very resilient, rebounding strongly from the pandemic, and it is considered to have ongoing structural growth in front of it. The company should be able to exhibit the same success in the student placement market in both the UK and Canada – and longer term, in the large US market.
A surge in applications from international students has pushed Australia back to No. 1 position as the most preferred global destination; but offsetting this, there are concerns about the government’s recent decision to halve net migration levels within the next two years, with imposing tougher tests on overseas students central to this strategy.
IDP Education’s share price was hit by that news, as well as India-Canada tensions, that the market fretted could hit IELTS volumes in FY24; Canada accounts for 30% of IELTS volumes. But behind the Australian news, the government still expects high demand for Australian student visas, and there is a strong case that the lower end of the market will bear the brunt – whereas IDP operates much more at the higher end of the market, in both student placement and English-language testing. In fact, the government’s changes should actually increase demand for English-language testing. Australia’s new migration strategy will require student visa applicants to pass a stronger English-language test and will require them to prove they are genuine students before they enter the country, while making it harder for them to stay if they do not find jobs that help fix the nation’s skills shortages.
There was hardly a financial measurement that did not show big improvement for IDP in FY23: the company has leading market positions in large and structurally growing markets. I think the stock has been unfairly marked-down over 2023 – it’s down 24% – and I would be happy to see some IDP under the Christmas tree for me.
- Mineral Resources (MIN, $68.97)
Market capitalisation: $13.3 billion
12-month total return: –14.9%
3-year total return: 31% a year
Forecast FY24 dividend yield: 1.6%, fully franked (grossed-up, 2.2%)
Analysts’ consensus target price: $72.28 (Stock Doctor/Refinitiv, 16 analysts)
Mineral Resources is not just another miner – although it is a major resources company, with extensive operations across lithium, iron ore, energy and mining services across Western Australia.
MinRes is now the world’s second largest producer of spodumene (hard-rock lithium ore), from its Mt Marion and Wodgina mining operations in Western Australia. MinRes owns 50% of the Mt Marion mine and processing plant near Kalgoorlie in Western Australia, with the other half owned by Chinese company Ganfeng, which is also the mine’s offtake partner. Located 40 kilometres south-west of Kalgoorlie, in the Goldfields region of Western Australia, Mt Marion contains the world’s second biggest high-grade spodumene reserves.
MinRes also owns 50% of the Wodgina deposit in WA’s Pilbara region, one of the largest-known hard-rock lithium deposits in the world, with the joint owner being US-based chemicals giant Albemarle. The Wodgina mine is undergoing a major expansion beyond its capacity of 250,000 tonnes.
Across Mt Marion and Wodgina, lithium reserves now total more than 200 million tonnes, while successful drilling at Mt Marion has confirmed it has a longer life than expected, and excellent potential for underground mining. And in September, MinRes bought (from administrators) the Bald Hills spodumene mine, located 50 kilometres south-east of Kambalda in the Goldfields region of Western Australia, close to the Mt Marion operation. MinRes is now the only company in the world to operate three hard rock lithium mines, each with their own spodumene concentrate facilities. In FY23, the lithium operations generated record underlying EBITDA of $1.3 billion, or 72% of the total, with record earnings at both Mt. Marion and Wodgina.
In iron ore, MinRes is bringing onstream its Onslow iron ore operations in Western Australia, where phase one of the project is targeting an annual capacity of 35 million tonnes a year and is estimated to produce at a cost of about US$32 a tonne, excluding royalties. Iron ore prices were recently around US$130 a tonne–US$140 a tonne. Onslow has been green-lit and is expected to be generating cash by August 2024.
Then there is MinRes’ wholly owned CSI Mining Services (CSI), which provides mining services both to MinRes’ own projects and Tier 1 mining clients. The company’s pit-to-ship mining services offering is unique to the resources industry and spans design, engineering, construction, mining, crushing, processing and haulage. CSI specialises in ‘build, own and operate’ projects – providing both capital infrastructure and whole-of-life operational expertise – and currently services eight external clients across 12 mine sites, in addition to five MinRes mine sites. In FY23, CSI delivered production volumes of 248 million tonnes, and underlying EBITDA of $484 million, or 27% of the total. MinRes expects growth from the mining services business to make it Australia’s biggest mining services provider by the end of 2024.
In energy, MinRes is expanding its natural gas holdings, making two onshore natural gas discoveries in the Perth Basin in FY23, and completing the takeover of Norwest Energy. MinRes says production at the two discoveries, North Erregulla and Lockyer, will help transition its mining operations to low-cost natural gas and renewables, driving its decarbonisation strategy and further diversifying its business.
In the overall view, MinRes is a good collection of uncorrelated earnings streams, underpinned by the growing mining services business, which currently contributes 15% of the group’s revenue and 24% of the profit. This business reduces the reliance on commodity prices. MinRes is well-diversified and has excellent growth prospects – I know of at least one broker that has a price target of $90.00 on the stock – and I’ve asked Santa for some shares.
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