Chris Kourtis thinks he’s found another winner.
“It’s a stock I’ve known for a long time. I’ve missed the big run over the last few years, but we’ve recently gone back in,” he tells The Australian Financial Review. “I think it’s the last chance to have a bite at the cherry before the strategy plays out.”
The Ellerston Capital portfolio manager is talking about retail giant Premier Investments. As with many of Kourtis’ investments, his decision to buy in appears at odds with the market.
Shares in the retailer sank 13 per cent last month after revealing a sales slump and plans to delay the demerger of its Smiggle and Peter Alexander businesses.
“Obviously, the market has been disappointed by their recent result,” he says. “But at the end of the day, it’s a very well-run business. The balance sheet is pristine.”
He is confident that despite the concerns floating around the market, the company can make good on its growing list of promises, including the spin-offs and a possible merger of its apparel brands with department store Myer.
“They will demerge Smiggle and Peter Alexander. That’s been pushed out, but not abandoned,” Kourtis says. “The focus now is on consummating the Myer merger with Premier’s apparel brands, and that will add value to shareholders.”
Kourtis says Premier’s large stake in ASX-listed kitchen appliances maker Breville should help abate some of the other concerns baked into the share price. “If you add up the billion-dollar Breville holding with their Myer holding, with the net cash, you’re not paying a lot for the residual businesses,” he says.
Perhaps most important for Kourtis, however, is that the company remains very much in the hands of famous merchant Solomon Lew.
“The best retailer in Australia has hands on all over those businesses. He will walk into a store on a Saturday with a baseball cap and a fake moustache, sunglasses and see how long it takes the assistant to serve him,” Kourtis says.
“I’ll back Solly all day, every day. He doesn’t miss a trick and that’s why he’s built a very successful business over 50 years.”
If his call on Premier Investments proves fruitful, it will cap an impressive string of turnaround bets by Kourtis who’s developed a reputation for calling the bottom for some of the ASX’s most notable out-of-favour companies.
Stock picking with a side of dip
When Kourtis stepped onto the stage at last year’s Sohn Hearts & Minds event in Sydney, the famed contrarian investor named ASX health-techs ResMed and CSL as his picks.
At the time, Kourtis went out on a limb, saying the concerns that weight-loss drugs such as Ozempic would reduce the need for the services offered by both companies were overblown. “Some of my best returns have come from picking a turnaround story and, like ResMed, just at that inflection point when the market’s maximum bearish,” he says.
It was a good call. While Kourtis would sell out of his CSL shares several months later, notching a decent return in the process, his Ellerston Australian Share Fund still owns ResMed. When he stepped off the Sohn stage in November last year, the shares were trading at around $20 apiece. They last traded just below $36.
In June, Kourtis made another controversial pick, telling investors in a closed-door briefing that he was backing troubled packaging giant Orora. The shares surged more than 30 per cent in the weeks following, and Kourtis sold shortly after. “It’s not cheap any more, so I’ve left the building – I only buy cheap things,” he adds.
Andrew Forrest’s Fortescue is another recent addition after the stock slumped around 30 per cent. He’s already taking some profits from the iron ore producer. “We’ve halved our position on that recent bounce up,” he says. “With resource stocks, sometimes you just got to trade them.”
The latest run of dip-buying successes has helped solidify Kourtis’ reputation as a buyer willing to step in when others shy away.
Value traps and falling knives
That contrarian approach can often land investors in the dreaded “value trap” when a sold-off stock looks cheap but ultimately fails to rebound – or in the case of embattled casino operator Star Entertainment, continue to dive. “The hardest thing in funds management for anyone who’s got any valuation discipline is [to] avoid the value trap.”
That’s proved the case for investors at the WAM Leaders Fund, which made a big bet on Star last year only for the stock to plummet with the casino operator nearing financial collapse in subsequent quarters.
“A lot of really smart investors have been caught with their pants down, and a lot of them will regret those decisions,” Kourtis says, adding he hasn’t owned the stock in years, last trading out when it still held a “five-handle”.
“That’s $5 not 5¢,” he says. Star’s shares last traded around 25¢.
So with the shares now in the doldrums, is the stock piquing the portfolio manager’s interest? “Would I buy it at 25¢? No – I think it could go to zero.”
He says the decision to steer clear of Star was, in part, informed by his own mistake made nearly a decade earlier, when shares in BlueScope Steel were trading at similarly cheap levels. “I caught the falling knife,” he says. “It was trading at a massive discount price to book and then suddenly they lost $500 million [in earnings]. I didn’t see that one coming and got it right between the eyes.”
He says the “painful error” cost the fund returns. Kourtis quickly sold out at around 85¢ – it would eventually decline to around 30¢.
A year on from his ResMed pick, Kourtis is preparing his next selection for the Sohn Hearts & Minds 2024 Conference in Adelaide next month. While he’s tight-lipped on his stock pick, the themes for this year’s event will explore space, artificial intelligence, geopolitics and biosciences.
The Australian Financial Review is a media partner of Sohn Hearts & Minds.
This article was originally posted by The Australian Financial Review here.
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