Ask A Fund Manager
The Motley Fool chats with fund managers so that you can get an insight into how the professionals think. In this edition, Eley Griffiths portfolio manager Nick Guidera picks 3 ASX shares that are ready to shoot up in 2022.
Hottest ASX shares
The Motley Fool: What are the 3 best stock buys right now?
Nick Guidera: One that might be less familiar to your readers is Tuas Ltd (ASX: TUA).
Following the merger between TPG Telecom and Vodafone in June 2020, the Singapore mobile business that TPG owned at the time was demerged from the broader group and transferred into a business known as Tuas.
That listed entity now is a significantly growing telco… going after the Singapore mobile market.
If investors can cast their mind back to the early days of TPG, TPG came in to disrupt the core telcos of Telstra Corporation Ltd (ASX: TLS) and Optus — and Vodafone to a lesser extent — offering cheap plans and good coverage, and an affordable solution for [an] area of the market that perhaps wasn't being looked after.
That playbook is effectively being rolled out in Singapore by the former TPG team. As they look to take share in that market, they've spent the last few years building out their coverage.
They recently reached EBITDA break-even, and in their most recent quarterly update at their AGM last week, they indicated that they were making money at the EBITDA line, as well as growing subscribers.
Probably the most interesting thing about the business is the plans that they're offering, I've been told, they're at least one-tenth of the price of some of the competitors out there. It's no wonder they're taking share, but they're doing it in a profitable way as demonstrated by [their] last quarter.
I think that's a really interesting one and one that while it's had a good run, there's a long way to go in that story.
MF: Your second one?
NG: The second one is a sector that has struggled this year, but I think is particularly interesting, and that is DDH1 Ltd (ASX: DDH). DDH1 is a drilling business based out of Perth, WA. They have a significant amount of market share across hard rock commodities, and they provide drilling services for the likes of Fortescue Metals Group Limited (ASX: FMG), Rio Tinto Limited (ASX: RIO), BHP Group Ltd (ASX: BHP) and gold mining companies as well.
They have had a very positive start to FY 22. Their utilisation of their drilling rigs has picked up substantially and they are also continuing to increase their pricing because of the demand for their drilling services across miners, who are looking to expand production, as they look to recycle mines.
They recently announced the acquisition of Swick Mining Services Ltd (ASX: SWK), which is another mining company, to expand their fleet and to in-house some of the maintenance that they're currently outsourcing.
If you look at the competitors globally, like Major Drilling Group International Inc (TSE: MDI), they're saying quotes like "given the history of a mine cycle and the projected near term supply deficit for many mining commodities, I believe we're in the early stages of a significant mining industry upcycle" — and that's come from the CEO of Major Drilling, which is one of the largest drillers globally, listed in Canada.
Given this is the exposure to Australian mining, and I think the sector's ripe for attention as miners who have made a lot of money through the iron ore booms and lithium booms and the gold booms from recent years, look to restock that production. The easiest way they do that is through incremental drilling and these guys are very well placed.
MF: And your final pick?
NG: The third one is Wisr Ltd (ASX: WZR). Wisr is an interesting small company that is one of the fastest-growing consumer finance fintechs. They have a highly automated digital lending and wellness platform that services prime borrowers. They've got really compelling unit economics, in terms of they continue to lower their funding costs, which will ultimately drive improved EBITDA margins. They've got a really big runway for growth as they take share away from the incumbent banks who are focusing less on personal loans.
They've done it in a way where they're not just trying to gouge the customer with high interest rates. They're actually trying to encourage customers to look at their financial wellness through their tools that they're offering. They've got, I think, more than 450,000 users in their financial wellness ecosystem which they can then use to sell their lending products to. And as the world opens up, there should be some good demand for personal credit to go on holidays, to deal with life events like weddings, and to purchase new cars.
With a really strong management team and a growing loan book — and this stock has been knocked about not dissimilarly for the last 3 or 4 weeks on the fact that it is relatively early stage — I think it looks pretty interesting.
MF: Wisr shares were headed up earlier this year, but it's come down a little bit in recent weeks, hasn't it?
NG: It has. I think it's one of those stocks that were probably subject to some profit-taking. Little fundamentally wrong with the business, just a market that's a little bit more conservative and people wanting to allocate capital differently.
MF: Do you ever worry with these lending businesses about the amount of ongoing capital they require?
NG: Well, the beauty of Wisr's model is they have a warehouse arrangement with a number of the large major banks. Because the major banks can't access the personal loan market as efficiently as perhaps some of these new fintech digital offerings, they're partnering with these emerging companies like Wisr and offering their balance sheet to help with that funding requirement.
In a way, the actual funding requirement from Wisr specifically is less than what it would be, not having these warehouse funding arrangements. Should the financial system melt down or there be a credit crunch of sorts then, yes, certainly these businesses are vulnerable. But for the moment, with a growing appetite for banks to expand how they lend, I think businesses like Wisr are pretty well-positioned.
