Stock Of Origin

Sports prowess is all well and good, but how do the states stack up when comparing various companies that call them home? The cockroaches like to call themselves the business hub of the country, but could it lose its mantle to the toads up north?

We got adjudicator Claude Walker from A Rich Life to give us the lowdown.

Aussie airline minnow (NSW based) Regional Express Holdings (ASX: REX) received significant life support during the early days of the pandemic, receiving tens of millions of dollars from the COVID-19 Regional Airlines Funding Assistance, Regional Airline Network Support, and the Australian Airline Financial Relief Package, not to mention JobKeeper. It comes up against the little known (Queensland based) PTB Group (ASX: PTB), which does leasing, maintenance, and repair of the propeller engines used by many small planes.

While Rex benefitted massively from government largess, PTB Group, in which I own shares, received less than $2m in JobKeeper. Nonetheless, PTB Group remained profitable throughout the pandemic, even despite the fact that its biggest customer, an airline in the Maldives, was badly impacted by the big hit to tourism.

With the economy looking shaky again, game one goes to PTB Group without a shadow of a doubt; due to a much stronger defensive line-up. Government largesse is never guaranteed and without it, Rex’s expansion plans over the last two years may end up leaving their try line badly exposed.

QLD: 1 NSW: 0

In game two NSW-based insurance behemoth Insurance Australia Group (ASX: IAG) comes up against Queensland’s Suncorp (ASX: SUN). The biggest difference between the two is that where IAG Group is focussed purely on insurance, Suncorp has both insurance and banking.

With catastrophic floods (and fires), increasingly common, both of these aging giants are having trouble with defense. As insurance claims continue to mount, unexpected costs could badly impact profit in any given year. On the flipside, a rising rate environment means that the insurance giants can earn increasing interest on their insurance float, which is the money they collect upfront in the form of insurance premiums. That’s a tailwind for both, but IAG is the larger company, so should be the bigger beneficiary from this effect.

On top of that, the word about town is that house prices have peaked and that should put a dampener on the banking side of Suncorp’s business, which has been rather profitable lately. This should see Suncorp’s attack weaken in the second half, leaving IAG to take the win.

QLD: 1 NSW: 1

In the final game of the series stalwart NSW retailer Harvey Norman (ASX: HVN) comes up against Queensland’s Super Retail Group (ASX: SUL), which owns Supercheap Auto, BCF, Rebel Sport and Macpac.

During the pandemic, Harvey Norman did very well as many bought new television sets, computers and kitchen appliances. Remember when we were all baking bread? Going into a (potential) recession, neither retailer is looking particularly good, but both of them are trading on less than 10 times historical earnings, reflecting the market pessimism.

When push comes to shove, at least some parts of Supercheap Auto’s business are needed for automobile repair, so some of its sales are a lot less discretionary than a new Samsung tablet. On top of that, exposure to a variety of themes from automobiles to outdoor recreation and sports gear, gives Super Retail Group more diversification than Harvey Norman, and, in my view, less exposure to the ever present threat of online retailers.

Expectations might be low for both stocks, but game three goes to Super Retail Group.

QLD: 2 NSW: 1

This means that Queensland does take out Game 2 in Stock of Origin! Will that be replicated on the field? 

Game Three takes place on Wednesday 13th July.

This is not a recommendation to invest, as always do your own research