Merlon’s Neil Margolis on why New Hope still offers value, his scepticism about IPOs and the extreme bullishness being priced into travel stocks.
What are your views on the IPO market? Any IPOs you’re in, or like the look of?
A stock we have been invested in since early 2020 is thermal coal miner New Hope Group . At the time coal prices were below $US60 a tonne, but our analysis demonstrated that downside risk was limited by the mine’s sub-$US50 a tonne cost base. At the time, more than half the industry was unprofitable, which gave us confidence that supply would respond, and the price would rise – and history shows that when it rises, it can rise a lot.
We do own Qantas after investing during the Sydney lockdowns last year, and while it has rallied strongly, the market valuation is still below pre-pandemic levels and there is potential for permanent market share gains and cost efficiencies.
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