September is generally considered a weak month for ASX shares and global equity markets. So far this month, the ASX 200 broke a four day winning streak and rolled over into negative territory on Tuesday, and on Sunday, President Donald Trump went ahead with new China tariffs on $110 billion worth of imports and Beijing retaliated, further escalating the US–China trade war.
However, my main takeaway from August reporting season is that well-run, high quality companies with good management are able to outperform, irrespective of geopolitical and macroeconomic pressures. Here are three high quality companies that might not be a buy today, but deserve a place on your watchlist this September.
1. Altium Limited (ASX: ALU)
Altium delivered a strong FY19 result with net profit up 41% and revenue growth of 23%. The company continues to drive innovation with its newly released Altium Designer 19 for Printed Circuit Board design, a beta version of its new cloud platform, and a furthering of the capabilities of its Octopart search engine. What makes Altium a high quality business is its confidence in achieving its long-term targets, which include hitting US$200 million revenue by 2020, 100,000 Altium Designer subscribers before 2025, and an aspirational revenue goal of US$500 million in 2025.
2. EML Payments Ltd (ASX: EML)
In its FY19 results, EML exceeded its guidance range, posting earnings before interest, tax, depreciation and amortisation (EBITDA) growth of 40% and revenue growth of 37%. The financial services company specialises in prepaid stored value products across Australia, Europe, United Arab Emirates and the United States.
In my opinion, EML finds the right balance between organic growth and growth via acquisition. On the acquisition front, the company has acquired two shopping centre gift card providers – PerfectCard DAC and Flex-e-Card group. Organically, the company saw growth from a growing demand in gaming related products, client wins within the retail/shopping mall sector, and a rapid growth of customers within its virtual account division.
3. CSL Limited (ASX: CSL)
CSL is the share that perfectly fits the description of a high quality, well-run business with good management. The company delivered a phenomenal 17% growth in net profit and 11% increase in revenue for FY19. CSL continues to position itself as a market leader for its plasma and recombinant products, with plans to open around 40 new collection centres in FY20. The company provided an outlook of FY20 net profit growth to be within the range of 7–10%, which takes into account the one-off financial headwind of transitioning to a new model of direct distribution in China. This one-off financial effect is expected to reduce sales by approximately $340–370 million. I believe underlying net profit growth sales would be much higher vs. the statutory forecast that CSL has given.
Foolish takeaway
Investors need to pay close attention to whether the markets are currently in a pullback correction phase or a breakdown to lower lows. The US–China trade war is taking a significant toll in business and equity market confidence, with no trade deal resolution in sight. However, it is important to keep an eye out for high quality stocks like these three that will perform regardless of macroeconomic and geopolitical events.
