Company News: James Hardie, Healius and Perpetual
Australian Equities Portfolio
Clients’ position in James Hardie was sold in full this week.
James Hardie has been an incredibly successful investment over the past 9 months. We purchased a position in the company in late March at the beginning of the share market recovery. This was with a view that James Hardie was a company with an enduring franchise trading at a considerable discount and likely to be a beneficiary of the strong activity we had witnessed in the US housing market pre-pandemic.
A surging US housing market has subsequently seen the company outperform our expectations, with the position returning 131% since March. However, despite continued strength of the US housing market, James Hardie has reached a price we assess has extrapolated recent activity and is well above our long-run valuation.
After progressively trimming clients’ position over the last few months, we sold the remainder of the position this week to round out what has been a cornerstone position in the portfolio.
Healius (positive impact) gave an update to investors which saw its share price end the week 9% higher. After completing the sale of its Medical Centres businesses, the company is now in a position where it has surplus capital. It outlined how this capital is to be deployed over the coming years.
This includes the commencement of an on-market buyback (where the company will buy back its own shares), a reinstatement of dividends (targeting a payout ratio of 50-70% of statutory net profit), continued investment in growing its day hospital business and pathology as well as continued upgrades to its laboratory information system.
The company also reiterated measures being taken as part of its sustainable improvement program, which it estimates will see a 3% lift in margins over the coming years and an operating profit of approximately $260m by 2024. This was ahead of market expectations and saw a lift in its share price.
Healius has been an outperformer over the financial year (+27%) and is now approaching levels we assess as closer to fair value.
Perpetual (positive impact) held its investor day this week. The company provided an update on recent Barrow Henley and Trillium acquisitions.
Early indications are that fund performance has not only benefited from the recent rotation we have seen into value stocks but is also outperforming broader value fund benchmarks.
Pleasingly, it appears the integration of new acquisitions is proceeding as anticipated, with no additional integration costs anticipated.
We purchased Perpetual in August on the basis that we believed these acquisitions would be accretive in the near term and fund performance would benefit from a broader rotation into value.
It has returned approximately 25% since August, significantly outperforming the broader index.