Stock Of Origin: Game 3

It’s the final round of State of Origin 2022, with both states on equal footing. Queensland shocked with a win at Game One, while New South Wales came back fighting and leveled the series in Game Two. And now it’s time for the grand finale.

Meantime on Stake’s Stock of Origin, Queensland remains in front after Claude Walker granted the state the win. But what will this round bring? It’s game on, in the final Stock of Origin between the cockroaches and the toads.

This time, a neutral party from Melbourne, Luke Laretive from Seneca Financial Solutions, joins us to give us the lowdown.

Both stocks are down over 30% on a rolling 12-month basis, despite Breville’s forecast earnings increasing by 13% over the next 12 months, while Domino’s earnings are forecast to decline by 10%. The reason being, Domino’s strategy to be a price leader (i.e. the cheapest pizza) in its category means its margins are highly sensitive to rising soft commodity prices (think meat, wheat, dairy products, fruit, vegetables etc) and the rising costs of labour.

Breville on the other hand, are an R&D-lead business who outsource much of their labour-intensive divisions (sales and distribution) to retailers.  Further, e-commerce as a function of total retail is growing every year, with home appliances being one of the highest growth categories in that trend – this also benefits a brand and innovation-lead business like Breville long term.

I’m giving the win to NSW-headquartered Breville.

QLD: 0 NSW: 1

If there was ever a head-to-head stock matchup that optimises State of Origin, this would be it.

WHC has outperformed NHC over the past 12 months by around 30%, as the recent windfall from exceptional thermal coal prices allowed them to pay down debt and improve the quality of their overall business.  We think the bull-market in coal stocks ends over the next 6-12 months and that in a lower benchmark price environment, the higher margin, more operationally stable assets of NHC will be more attractive to investors.  We also really like NHC management, particularly new CEO Rob Bishop who I’ve seen firsthand oversee exceptional cost and operational performance in a past life.

It might not be another year where coal stocks go up 100%, but NHC outperforms the peer group – a win for Queenslanders.

QLD: 1 NSW: 1

Megaport has been a darling-to-disaster story, with growth stalling (6%) and the share price falling 60%. To be fair, almost every unprofitable tech company has been smoked and Nearmap is no different, down 30% despite continuing to achieve (and exceed) its Annualised Contract Value (ACV) guidance

It’s hard for me to find much to like about Megaport at the moment, declining average prices, declining volumes and it’s still on 6x EV/Sales. There’s plenty of companies around the world, offering 15-30% sales growth for those sorts of prices (some, even with earnings!)  Sure, the customers are world class, and the TAM is huge, but if the company can’t push through price rises and win market share at the same time, you can’t pay those sort of valuations imo.

I don’t love Nearmap’s outlook either if I’m honest, though at least they have a leading product and management have less work to do on costs. You’d need to be a believer to a certain extent, to be a buyer of either company at these prices, though in the head-to-head, I’ll take Nearmap from NSW as the valuation isn’t so stretched.

QLD: 1 NSW: 2

This means that New South Wales takes out this round of Stock of Origin. But will it be replicated on the field?

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