Cochlear resonated with institutional investors in 2019 with sentiment improving 7.8% over the year, according to research just released by MarketMeter. Cochlear’s overall mean score across 26 categories grouped by Management, ESG, Strategy, Financials and Shareholder Engagement jumped to 6.96 in 2019 from 6.46 in 2018.
This sentiment momentum has continued in 2020, and it’s not just the institutional investors giving Cochlear a positive hearing. Overwhelming retail investor demand for the stock saw the company more than quadruple the retail component of its recent capital raising to $220m from $50m, bringing the total raising to $1.1bn. This improved retail access to and allocation of equity received broad support from the market as evidenced by the current share price of around $190, up a resounding 35% from April’s $140 a share issue price.
The positive perspective investors have on Cochlear has been maintained despite a pandemic-induced decline in revenue from elective surgeries. Omkar Joshi, Principal and Portfolio Manager at Opal Capital Management noted that “Cochlear had some delays in some of their surgeries due to Covid-19.” Chairman Rick Holliday-Smith commented that “Cochlear has been the global leader in implantable hearing solutions for close to 40 years and continues to make significant investments in R&D each year. We’ve strengthened our market leadership position over the past 12 months, launching a number of new products which have been well-received by the market, driving improvements in market share.”
While Cochlear topped the table of most improved ASX 100 stocks in terms of ‘overall’ institutional investor sentiment from 2018 to 2019, health sector peers Sonic Healthcare and CSL also featured in the Top 10 according to research conducted by MarketMeter.
Table 1: Top 10 most improved ASX 100 stocks (as scored by professional investment managers)
|2||OZL||OZ Minerals Limited|
|NCM||Newcrest Mining Limited|
|SHL||Sonic Healthcare Limited|
|WTC||WiseTech Global Limited|
|CIM||CIMIC Group Limited|
Sonic Healthcare saw sentiment improve by 5.8% to a mean score of 6.44 in 2019, up from 6.08 in 2018, ranking it 4th most improved amongst the ASX 100. Like Cochlear, Covid-19 has had a short-term negative impact on Sonic Healthcare. While the company has been at the forefront of the fight against the virus with labs across three main geographies (Australia, EU and US) providing essential clinical testing for the virus, increasing costs for testing components and decreased revenues due to social distancing has taken a toll on FY2020 earnings growth. Last week CEO Dr Colin Goldschmidt and CFO Chris Wilks stated that “…Sonic’s trading results for March and April 2020 were substantially below forecast, with May results stronger than expected. This positive trend has continued through June to date. Whilst there remains uncertainty and volatility associated with the pandemic, Sonic is now in position to provide new earnings guidance for FY 2020.” Dr Goldschmidt commented in the update that “Sonic continues to play a crucial frontline role in combating the pandemic, with our laboratories…testing thousands of patients per day for Covid-19.”
Still on health care, CSL Limited ranked 9th in MarketMeter’s Top 10 most improved ASX 100 stocks, coming off a base of 7.61 and moving up to 7.90, an increase of 3.8%. CSL has been a market darling for many years, and in fact was a Top 3 ranked stock ‘overall’ by MarketMeter in 2018 and 2019, placing 2nd across the ASX 100 in both years. In terms of Covid-19, CSL recently concluded a deal with the University of Queensland and the Coalition for Epidemic Preparedness Innovations (CEPI) to fast-track the development of a vaccine. This comes after promising early results in the laboratory and positions Australia well in the global race to beat the virus. The share price reached a pre-Covid peak of around $340 before plunging to around $270 but has now bounced back to around $290. Omkar at Opal Capital Management observed that “CSL has been a favourite stock for a very long time for a lot of people. There has been some potential disruption due to Covid-19, but CSL has been and remains a big part of the index so it’s in a lot of portfolios which gives them stability and it is a good business.”
Andrew Goodsall, a top-rated health care analyst from MST Marquee, noted that “FY20 is no longer instructional for valuation purposes. Where the balance sheet is satisfactory, the market focus is FY21/22. The underlying strength of the business is key. COH for instance raised capital and despite a slow return of elective surgery and sales, the stock price has re-rated on the longer-term view. Throughout, CSL has continued to see demand exceed supply for their key products, however fear has reduced donors for plasma which could bring some lumpiness to sales in 2H FY21. Sonic has been instrumental in Covid-19 testing across all of its major jurisdictions, largely offsetting a fall in routine testing.”
While healthcare stocks found most favour with investors, resource and energy stocks also benefited from improving sentiment. Oz Minerals saw the 2nd biggest improvement in sentiment with its mean score jumping 6.3% to 6.45 in 2019 from 6.07 in 2018. Jim Copland, Portfolio Manager and Executive Director at IFM Investors commented that “Andrew Cole inherited a single asset company with a relatively short open pit mine life, a still uncertain underground future and plenty of headwinds including commodity price and execution risk. His team’s focus on the long term has turned this into a platform for growth through project development at Carrapateena, a valuable but initially under-appreciated acquisition in elephant country in Brazil, and most recently the West Musgrave deal in WA, ensuring OZL’s future as Australia’s largest cap base metals pure play.”
Newcrest Mining ranked 3rd, improving by 5.9% to 6.31 in 2019 from 5.96 in 2018. Mr. Joshi noted that “Newcrest has had some operational challenges in the past, but with the gold price being very strong that’s a big positive. The huge fiscal stimulus packages being doled out around the world means gold has rallied strongly.”
CIMIC Group ranked 7th improving their mean score by 5.1%. Mr. Joshi at Opal Capital Management said “CIMIC is 77% owned by their parent, and they are a stock that is obviously linked to the infrastructure cycle. With the focus on infrastructure spending by governments due to Covid-19 means that infrastructure is not a bad sector to be involved in right now.”
Santos ranked 8th coming off a base of 6.22 rising to 6.53, an increase of 4.98%. Mr. Joshi suggested “Santos is clearly leveraged to the oil price, which has bounced back after falling off a cliff but is going sideways for now. The oil sector is generally recovering from Covid-19 lows as economies begin to re-open.”
Australia’s burgeoning tech sector has benefited from sentiment stimulus. The stock coming off the highest base in MarketMeter’s Top 10 most improved ASX 100 list was Xero, which ranked 10th with a 2018 mean score of 7.64 improving 3.7% to 7.92 in 2019. Xero was also the top ranked stock ‘overall’ in 2019 across the ASX 100 in MarketMeter’s institutional investor sentiment research. Kirsty Godfrey-Billy, CFO at Xero, highlighted their commitment when she commented that “Our purpose at Xero is to make life better for people in small business, their advisors and communities around the world. We believe technology will shape the future of small business success – and that the opportunity to drive adoption of cloud accounting globally is very large – with tremendous scope for growth given current low penetration rates of around 20% in markets outside Australia and New Zealand.” Opal Capital Management’s Omkar Joshi commented that “Xero is an excellent business which has done really well over a number of years. Its biggest risk is what will happen to its SME customer base due to the challenges presented by Covid-19. So far it’s had a dream run, and it’s a tech stock so that’s a big positive at the moment. Its business model is robust, and it’s performed very well relative to how things could have panned out.”
WiseTech Global ranked 6th coming off a base of 7.18 in 2018 and increasing their score by 5.6% to 7.58 in 2019. WiseTech Global was also ranked 3rd ‘overall’ across the ASX 100 in 2019 in MarketMeter’s institutional investor sentiment research. Founder and CEO, Richard White, commented that “We appreciate this strong support from our investors and institutions who increasingly understand the value in what we are building. Across the world, there has never been a greater need for the digitisation and integration of global logistics, and we are optimistic that the long-term opportunity available to us is vast.” Richard elaborated observing that “The logistics industries are converging on the need for real-time visibility, risk reduction, integrated decision-making capability, cleansed and verified data and safer cross-border transactions, which CargoWise delivers.” Mr. Joshi provided some perspective noting “WiseTech is a transport/logistics technology stock that has faced some earnings headwinds during Covid-19 as transport/logistics has been under pressure. WiseTech’s outlook is primarily linked to the economy but also how well their acquisitions continue to perform.”
Opal Capital’s Omkar Joshi summed up the situation noting that “not many companies have done well out of Covid-19 and if they have, it’s only in relative terms. There are not many pure winners, but there are companies doing better than others. Woollies and Coles have done better in terms of sales. Graincorp and Elders are agricultural stocks so not much Covid-19 impact, but are not really beneficiaries either. They don’t have a lot of earnings leverage.” As far as the future is concerned, Mr. Joshi observed “Obviously the timing of a vaccine is critical for a lot of companies, but nobody really knows when it will arrive. There are about 130 different groups out there globally trying to find a vaccine.”
About the organisations mentioned above
MarketMeter is a digital disruptor in the institutional investor sentiment arena – providing corporate subscribers and data providers with an interactive analytics platform to access granular insights across 26 performance categories grouped by Management, ESG, Financials, Strategy and Shareholder Engagement.
MarketMeter’s 2020 research is now open and eligible institutional investors and brokers can score their stocks and access the analytics via this link: https://stockscores.marketmeter.com.au/.
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