Prime Value portfolio manager Richard Ivers is looking to Newscorp as he believes the firm’s real estate arm REA will do well on the back of a recovering property market.
The firm’s Emerging Opportunities fund currently held Newscorp in its top five largest holdings as Ivers said the firm had several quality assets within its company. This included website realestate.com.au (REA), Dow Jones and publisher Harper Collins.
Ivers said the firm was an example of a stockpick by the fund which was not typically well-owned by other companies and was not one of the ‘hottest’ areas of the market.
Shares in Newscorp had risen 27% over the year to 29 January while REA had risen 31% compared to losses of 3.3% by the ASX 200.
“The biggest asset of Newscorp is REA which is one of the highest-quality businesses on the Australian listed market and Newscorp has $2 billion cash on its balance sheets. Putting those two things together bring it to almost the same share price as Newscorp,” said Ivers.
“That means you are getting other high-quality assets such as Dow Jones, which owns the Wall Street Journal, real estate website Move and book publisher Harper Collins essentially for free.”
Newscorp also had “lower-quality assets” within its business such as Foxtel and its Australian newspapers but Ivers said this was outweighed by the quality of its other parts.
REA, in particular, had good prospects for 2021 and would benefit from the recovering housing market after the pandemic as people listed their houses for rent or sale.
“REA is strong as the property market is recovering and the company also has exposure to the recovery via media advertising so the valuations of Newscorp could push up significantly,” Ivers said”
Share price performance of REA and Newscorp versus ASX 200 over one year to 29 January 2021
Meanwhile, Ivers said he was avoiding holding too much exposure to retail and technology stocks with 18.6% allocated to consumer discretionary and just 3.1% allocated to technology. The fund’s largest weighting was 25.3% allocated to financials.
“Retailers benefitted from the stimulus and they did well last year but I question whether the growth is sustainable and the multiples are high so I expect them to moderate,” he said.
“There are parts of tech that have not done so well so we are cautious on that sector. There have also been lower bond yields and these are rising again which will hurt the valuation of tech stocks.”
The Prime Value Emerging Opportunities fund had returned 23.4% over one year to 31 December versus returns of 11.8% by the global small and mid-cap sector within the Australian Core Strategies universe, according to FE Analytics.
Performance of Prime Value Emerging Opportunities fund versus global small and mid-cap sector during 2020