Macquarie picks its top tech exposure stocks
By John Kavanagh
Macquarie Securities has surveyed what it sees as the four most significant technology trends that will have an impact on business earnings over the next few years and made six “high conviction” picks to gain exposure to these “megatrends”.
In a report sent to clients last week, Macquarie says investors wanting exposure to tech should be taking a look at the medical device manufacturer Cochlear, the accounting software and services company Xero, online recruiter Seek, cloud services provider Aconex, cinema management company Vista Group International, and advertising company oOhMedia!
The four technology megatrends identified in the report are the internet of things (what it calls the internet of everything), wearables, big data and virtual reality.
Macquarie’s view is that corporate Australia is lagging in the deployment of new technology. It cites the World Economic Forum, which ranks Australia 16th on its Networked Readiness Index – a measure of the progress of information and communications technologies.
“This is disappointing for a country where the standard of living is high, education rates favorable and where there is no evidence to suggest it is less innovative than other developed countries,” Macquarie says.
Several factors have limited the uptake of technology by corporates to date. They include the high cost of digital technology in Australia, slow internet speeds, over-regulation and the slow rollout of digital infrastructure.
Some of the likely losers are familiar names: traditional print and television media companies; and in retail, entertainment goods stores such as JB HiFi and Harvey Norman.
“We are wary of professional services and insurance,” Macquarie says.
The insurance industry should be a winner but it is not seizing the opportunities presented by technologies such as telematics and biometrics.
“To date Australian insurers have been slow to embrace new technology. Established insurers face a challenging market due to increasing competition from challengers,” Macquarie says.
Winners in the big data market will those that provide data storage, such NextDC, and also providers of software as a service, such as MYOB, Xero, Reckon and Aconex.
“We anticipate that the rollout of the National Broadband Network will enhance the value attached to data storage, with the NBN expected to increase accessibility to cloud computing services, improve connection speed and drive additional industry participation,” Macquarie says.
“Our top big data pick is NextDC, a data-centre-as-a-service provider with a range of business and government clients. The company connects business and government clients with their preferred IT providers, offering data centre facilities.”
In the wearables market, healthcare companies are well placed to benefit from the increasing sale of wearables and a reduction in patient cost base are medical device manufacturers that are innovating and adapting technological advances. Macquarie likes Cochlear and ResMed in this sector.
Macquarie says that for non-tech focused corporates the issue will be how they use technology to bring their costs down. The internet of things will improve asset utilisation for utilities, labour productivity in mining and agriculture, supply chain improvements and inventory management in retail.
It won’t work for all companies. “Each of Fairfax, News Corp, APN and Seven West has embarked on extensive restructuring and cost-cutting programs to counter the structural deterioration of ad revenue. While these will temper earnings losses, they will not completely offset them.”
