MHOR’s James spenceley provides the AFR his best long and short idea for 2017.
Showing just how divided anything associated with the NBN is, James Spenceley of MHOR Asset Management, selects NetComm Wireless (NTC) as a stock with short potential. Its $300 million market cap and “little” earnings mean investors have to believe in contract wins under the NBN rollout and a large US telco to “justify value”.
“Being Australian, NetComm is protected fauna for the NBN, not an endorsement of world leading technology. Is the NBN the goose that keeps on laying? Shouldn’t we be thinking more about what happens to revenue in a few years when the NBN is completed?” Spenceley, the former chief executive of Vocus, observes costs at NetComm are rising and “the US contract announcement is a purchase agreement not a guaranteed order. However, the company is investing heavily for it”.
“The momentum from NBN orders is likely further out, non-NBN fixed wireless bypass operators are getting traction and any orders from the US are likely to be even further out, that is if they don’t get Trumped with a US manufacturer,” he says. “All this needs to be coupled with the fact the CEO suddenly resigned, as we’ve seen elsewhere a CEO departure can often not be a great result for a stock,” he adds, “irony noted”.
Spenceley’s long idea is Smart Parking (SPZ) which is now in 190 car parks. “The leverage in the business is outstanding with capex paid back in four months. The company recently raised equity to double the rate of new car park additions.” If achieved, MHOR sees $28 million in earnings in 2017-18, inferring a price-to-earnings (P/E) multiple of 7. “Clever technology, incredible return on capital, undiscovered.”