COVID-19 impact not as severe as initially feared


Jun Bei Liu

The Tribeca Alpha Plus Fund has released its latest monthly report and market commentary. In it, lead portfolio manager Jun Bei Liu says: “What is now clear is that the immediate impact of COVID (for most sectors) is not as severe as initially feared, but the initial recovery enthusiasm has been muted by concerns of further lockdowns (e.g. Victoria) and the still-unknown longer-term economic & behavioural implications of the pandemic.

“The fact the market rallied in August despite net earnings downgrades to FY21 forecasts highlights the extent to which the market is willing to look-through near-term weakness. We continue to be on the lookout for businesses that are priced attractively on a ‘normalised earnings’ basis, provided the risk and time of achieving such normalised earnings is appropriately discounted in the price.

“Our view has always been that current market conditions offer ample opportunities to buy some premium assets which are trading at a fraction of their intrinsic value. Sydney Airport, Scentre Group and Ramsay Health Care are some of our favourites in playing the reopening theme.

“Investors are paying very little at this point for earnings, and we are comfortable that once the world returns to normal – and it will – these businesses will experience a V-shaped recovery regardless of the economic cycle. In fact, lower interest rates around the world will further underpin their traditional premium to the market.

“Meanwhile, after a brief disruption to sales due to forced store closures, most retailers have staged a phenomenal comeback, aided by the stimulus and changing consumption patterns. It would seem that saved overseas travel dollars are now being spent on housing renovation and discretionary items. While many would call this boost to sales temporary, and look to take profits accordingly, our view is that this is too early.

“In the retail space, rather than the staple names, we prefer the discretionary peers. Like most of our recommendations to investors, a positive top-down view should not be translated into a blanket buy of the whole sector. Fundamental research is the critical factor to generate superior returns. In this vein, Super Retail, which owns Supercheap Auto, BCF, Macpac and Rebel, operates in the sweet spot of this transition year.

“Without international travel, people are exercising more and travelling more to local camping grounds, with many local camping grounds now booked out for the Christmas break. Super Retail pointed to continuation of strong sales growth into the first half of 2020, up 32% across the group despite the lockdowns in Melbourne and Auckland and we do believe they are the key beneficiary of the current trends. What’s more attractive is that it is only trading at 14x earnings which is a substantial discount to ASX industrial earnings multiple of 22x.”

Read the report.

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