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Stocks
Stock picks for the long haul: Woodside Petroleum Ltd, Wridgways Australia, Credit Corp Group
Jill Fraser - December 19, 2007
Fund manager stock picks: Woodside Petroleum Ltd, Wridgways Australia, Credit Corp Group
Current share price: Woodside Petroleum (WPL) $47.30; Wridgways Australia (WWA) $3.11; Credit Corp Group (CCP) $4.94
Fund manager: Kieran Kelly, Sirius Fund Management
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Kieran Kelly, Sirius Fund Management | In this section, CompareShares picks fund managers' brains for the stocks to watch in the year ahead. Jill Fraser reports
The expectation that liquid and natural gas (LNG) prices will continue to climb globally over the next decade is good news for the long-term growth prospects of Woodside Petroleum, Australia's largest independent oil and gas company.
Kieran Kelly, managing director and senior portfolio manager, Sirius Fund Management believes that Woodside’s future looks pretty rosy due to its LNG options and while he admits that he is unconventional in his approach to sectors, placing nil importance on the traditional concept of creating balanced portfolios, he has been an energy sector fan for 25 years.
His long-held vision of Woodside Petroleum, currently trading at $47.30 is that it will continue to provide above average rates of return.
"In the energy sector demand far exceeds supply and the ability for what I refer to as ‘product substitution’ – the ability for competing manufacturers to arrive in a sector and compete against your investment - is extremely limited," he says.
In Kelly’s view Woodside’s other strong feature is that its biggest assets are in Australia, in the "investment friendly sector of the world", where there is rule of law and stable government.
In a report issued this month Bell Potter Securities noted "global shortages of labour and equipment for LNG projects are continuing to drive significant cost escalation and cause project delay while demand growth remains robust". Hence higher global LNG prices are anticipated over the next decade.
Bell Potter Securities remarked that although expansion of Woodside’s North West Shelf LNG Project and new oil projects are driving near-term growth, the long term outlook is driven mainly by LNG.
Last month Woodside’s proposed $30 billion Browse, WA liquefied natural gas project moved a step closer to development when Taiwanese company, Chinese Petroleum Corp signed up as a prospective customer.
Based on the projected manifestation of the Browse project, contingent resources and exploration upside and the company’s plans to build a new LNG train (a vehicle for removing gas from the ground and transporting it to ships) Bell Potter Securities sets its 12-month share price target at $52.20.
Kelly, who tailor makes investment portfolios for high net-worth clients, does not share the commonly held opinion that the makeup of top management is pivotal to a business’ success and confesses that the way the popular press eulogises CEOs makes him squirm.
UBS Declaring that most CEOs are "grossly over paid" and that much of the strength in a business exists in the lower and middle rungs of management, he says that Woodside possesses a strong middle management and does not suffer from the star CEO syndrome.
Kelly’s prerequisite for all stocks is that the business is not overly complicated and that the respective CEOs must be able to explain the business function in less than five minutes. Proclaiming "if they can’t do that I’m not interested" he maintains that a simple business structure is one of his assessment criteria for success.
Woodside Petroleum fulfils Kelly’s above condition as do two other of his favourite stocks, removalist, Wridgways Australia (currently trading at $3.11), ditto Credit Corp Group (the stock is now at $4.94).
"Their businesses are simple," he says. "Woodside pulls gas out of the ground and flogs it to the Japanese, Wridgways sticks stuff on trucks and drives it around and charges people and Credit Corp is a debt collection agency."
Kelly likes Wridgways because they have a long history, a good market share and "they stick to their knitting". "Imagine a board meeting at Wesfarmers," he exclaims. "One minute they’re talking about flogging coal, the next they’re trying to work out how to sell spanners to blokes for their hardware business, the next they’re trying to work out how to sell lettuces to women (reference Wesfarmers’ recent purchase of Coles)."
While Kelly acknowledges that the "go-bust" factor exists in all companies he is confident that Woodside, Wridgways and Credit Corp possess the right ingredients to survive a severe downturn in the economy.
"They all have very basic businesses and their products will still be needed," he says.
More articles from this edition of CompareShares:
Investing: How investors will be impacted by a Rudd Government
Stock picks: Fund manager stock picks: WPL, CCP & WWA
Stocks: Stocks and sectors set to beat the market in 2008
Book Review: Trade Your Way to Financial Freedom
Resident Trader: Handling a trade dispute with your broker
Markets: US breaks from booming global economy
Expert Panel: Why it may pay to buy shares before the ex-dividend date
Debt: Super won't help mortgage woes
Rates: Rising costs add to rate risk
Whatever your views, you can discuss this article - or any of Jill's articles - on our message board Your 2 Cents.
Jill Fraser has 25 years' experience in the media as a radio producer on 2UE and journalist for News Ltd, Australian Consolidated Press and Key Media.
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