Author: Mr DDU.
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Merry Christmas everyone!
What’s Christmas without a wishlist? If Santa were to give me $5,000 split evenly to buy shares in 5 companies, what would I buy for us?
(In no particular order)
A pet is for life, not just for Christmas right? NVL is a veterinary company. The number of pets in Australia is forecast to continue growing as quickly as the population and people continue to spend more on the care of their pets. NVL is just starting out, however their top officials previously worked for Greencross Vets (ASX:GXL) (Australia’s biggest vet group) – so they have big-company experience, those people left for one reason or another, but mainly because Greencross now own a big number of retail shops and aren’t just a vet group anymore which disappointed certain individuals. NVL doesn’t yet pay a dividend, but they will soon and aim to pay out 50% of profits. They also aim to be the biggest veterinary group in Australia so there will be a lot of growth over the next few years. Plus, it’s currently a cheap and cheerful price for what it will become over time.
Estia is an aged care provider – they look after our older generation. The aging population is something all Western countries will have to deal with in the coming decades. There is a large baby boomer cohort that will need to be looked after by someone. Estia are one of the biggest ASX-traded companies and are proactive about the amount of beds they can provide through self-built facilities and acquisitions. In the year they’ve been publically traded, they have announced several purchases of other facilities and small aged-care groups. They are forecast to have a dividend yield of 5.3% (with franking credits included) in the current year and as more of the baby boomers (who are only just turning 65, a while before being care-home bound yet) check in to Estia, this will greatly increase their revenue. I think we’d be getting good bang for our buck with the current dividends and future share price on offer from Estia.
RFF is a diversified farm holding group (like a Real Estate Investment Trust but for farmland). I like RFF because it gives exposure to food – as the world population grows someone has to feed them, and in particular the growing Asian middle class want to eat an increasingly Western-style food diet. But the beauty of RFF is that it isn’t exposed to the dangers of food price changes – it leases its land to other food companies to use their land rather than operating the farm themselves. They own almond orchards (almonds are going down a treat in Asia and sadly (for California) the Californian droughts are making the water-intensive almonds difficult to grow). They own grape-growing vineyards (Asians love quality Australian wines). They own poultry farms (chicken is becoming a bigger and bigger part of the Asian diet). The leases to the operators are generally all at least 10+ years in length. They pay their dividend quarterly and it currently yields 6.36%, with the dividend likely to grow 4%-5% each year. A great, long term, yummy defensive buy, it’s as tasty as a Christmas Ham.
Challenger is one of my favourite companies. It is Australia’s biggest (and only real provider) of annuities (they provide around 80% of annuities in Australia) – an annuity is where you give Challenger a lump sum for retirement, eg $100,000 and they then pay you a portion of the capital and ‘interest’ (a bit more than you’d get at a bank) back each year in retirement. If you buy a life term then they’d give you money back every year until you die. It gives the customer security of getting some income and not having to worry how they should invest their money (you can also buy terms that are 10 years, or 20 years etc). They also recently started providing an annuity-type product, a service for the lump sum payment needed when you move into an aged-care provider. Challenger is really focussed on the baby boomer market and people retiring, which is just going to grow and grow. Also, compared to countries like UK and USA, where annuities make up around 10% of retirement assets, in Australia annuities are less than 5%, so as annuities become more well known and popular, there is a big potential for growth – even just growing to the same 10% market as UK & USA, would see the annuity market double (and Challenger would get 80% of that growth). There is a big conversation going on in Australia on how individuals and the country as a whole can afford the aging population – I (and many financial commentators) believe that annuities have a big part to play in this and it may become law that at least some money must be in an annuity. Challenger ticks so many boxes, I’m really excited about their future. They currently yield 5.1% (with franking credits), they’re cheap with such a long growth runway.
Altium is an Australian-listed company based mainly in the USA (with a presence in Australia, Europe and Asia). Altium designs software which allows engineers to create plastic circuit boards (which runs on a whole heap of devices). It makes its money through the sale of licences to use the software. They sell to individual engineers all the way up to NASA, BMW, Audi, BAE systems and more. They aren’t the biggest developer in the game but they have a much cheaper product and better features than their rivals and Altium is taking market share. Once you decide to use their software, it’s very difficult to up sticks and move, so they have a very loyal customer base. At the moment, they have a lot of cash on their books, so they could easily deploy that to buy another business to compliment their already-powerful setup of products. Another advantage is that they report in $US, so as the Aussie dollar continues to decrease in value, it will increase how much income is reported in $AUD. A lot of devices already use these circuit boards, but as more and more devices become connected (think fridges, toasters, washing machines, EVERYTHING) then they will all need circuit boards to power their functions. Altium is in a very exciting space, yet safe space because everyone will use its products one way or another. They currently yield 3.46% and I imagine there will be a lot of growth in that as time goes by.
So if you’re reading this, Santa, I’ve left you some cookies and milk out on the table.
Thanks for reading this article about our investing journey Down Under.
Onwards and upwards!