Investment consultant Mainstreet Financial Group has made changes to its growth-oriented Australian equity portfolio, removing Aurizon and Ramsay Health Care and replacing them Aristocrat Leisure and Macquarie Group.
In its September Model Portfolio Report, Mainstreet says rail freight operator Aurizon maintains a high dividend yield and would fit into an income portfolio but no longer has the growth characteristics it is looking for.
Mainstreet’s view on Ramsay Health Care is that with household budgets being squeezed, there is pressure on health funds to keep medical costs affordable and this is flowing through to healthcare company revenues.
As for its new holdings, Mainstreet says Aristocrat’s recently announced acquisition of the digital social gaming developer Plarium is expected to lead to additional earnings upgrades.
“This will assist in propelling Aristocrat’s stock price to higher levels,” Mainstreet says.
Aristocrat’s intrinsic value has increased by 11.1 per cent a year over the past nine years and is forecast to increase by 12.8 per cent a year over the next two years to $20.44 a share, Mainstreet says.
Its most recent earnings per share of 62 cents is forecast to rise to 84 cents for the full year and 114 cents by 2019. This equates to a growth rate of 22.5 per cent a year over the next three years.
Macquarie Group has been added to Mainstreet’s growth portfolio for a number of reasons: its long-tern cash flow relative to its reported earnings has been strong; its share price is trading at an “attractive valuation”, with its price-earnings ratio at around 14.3 times current year forecast earnings; and it has a high dividend yield of 5.1 per cent, which is forecast at 6.1 per cent for the 2020 financial year.
Since 2007 Macquarie has produced an average return on equity of 12.3 per cent. This has grown in recent years to more tan 15 per cent. The company has exhibited “excellent” grwth in earnings per share over the past five years.