Aussie equities: Where to look for opportunity in volatile markets

In a volatile world, equities investors should seek out businesses that are taking control of their own destiny, argues Pendal equities analyst ANTHONY MORAN

• Look for companies with control of their own earnings trajectory
• M&A, cost-cutting, market share gains
• Find out about Pendal Focus Australian Share fund

THE market turmoil triggered by Donald Trump’s trade wars, spending cuts, and geopolitical brinkmanship can leave investors feeling there’s nowhere left to hide.

But beyond the chaos, opportunities abound in companies simply getting on with business — cutting costs, expanding margins, lifting market share, and delivering for shareholders, says Pendal’s Anthony Moran.

In uncertain times, companies with control over their own future are precisely the sort of investments investors should be hunting down, he says.

“You want to lean into idiosyncratic upside — upside that won’t be derailed by macroeconomics or the business cycle.”

Moran, an investment analyst in Pendal’s Australian equities team, highlights ASX-listed companies such as Amcor, Light & Wonder, and BlueScope Steel as examples of businesses creating their own growth opportunities, led by management teams with the capability to control their own destiny.

Pendal invests in all three stocks.

Amcor merger upside

Moran says Pendal has been adding to its position in Amcor (ASX: AMC) and sees the global packaging giant as an attractive opportunity in the current market.

“Amcor’s cycle is not one that’s hugely volatile,” he says.

“They sell consumer packaging focused on the centre of the supermarket and healthcare – low-volatility, in-demand sectors.

“The plastic packaging industry globally is just coming out of a nasty bout of destocking after consumers cut back due to inflationary pressures and Amcor is regaining its operating momentum and returning to growth.”

Amcor’s all-scrip acquisition of New York-listed Berry Global Group – approved by shareholders last month – is set to accelerate earnings growth, argues Moran.

“Berry makes semi-rigid plastic packaging – think yoghurt tubs and beauty product containers – and Amcor is targeting US$650 million of synergies from the merger, which is 23 per cent of the combined EBIT.

“So, you’ve got a company that’s going to drive tremendous EBIT growth relative to historical levels over the next three years on the back of those synergies.

“Even if you have a cyclical slow down, consumer confidence softens, and volume growth is flat, that’s immaterial compared to the earnings growth.”

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Amcor benefits from a well-structured deal struck at a reasonable price by allowing Berry shareholders to share in the upside, Moran says.

With high gearing, shareholders will see even faster growth in earnings per share than the EBIT growth alone suggests.

And because Amcor manufactures locally in its key markets, it is insulated from US threats of trade tariffs.

“Amcor was already looking attractive beforehand — it’s currently trading on 11 times FY26 PE versus a historical average of 14.5 times.

“People haven’t given them full credit for the cyclical recovery and haven’t factored in the merger yet.”

Light & Wonder gaining share

Light & Wonder (ASX: LNW) is another company that fits the theme of being in control of its own destiny. For the slot machine maker, it’s the ability to gain market share that’s driving the upside, says Moran.

“If you’re doing something different, developing a competitive advantage that’s seeing you gain meaningful market share relative to the underlying growth rate in the industry, then that’s going to insulate you from the macro weakness we’re seeing.”

Light & Wonder is gaining market share in the US slot machine industry as a result of a multi-year turnaround strategy that has seen the company restructure how it develops games, revamp its sales and distribution model, and introduce better incentives for game designers.

With the US slot machine market growing in the low single digits, Light & Wonder’s market share gains have helped it deliver growth in the low teens, say Moran.

That means even if the broader economy slows, the company is still positioned for strong growth.

Cost control

Moran says other companies are delivering positive results for shareholders by refocusing on cost control.

BlueScope Steel (ASX: BSL) is a standout example, he argues. Alongside being a beneficiary of US steel tariffs due to owning US-based steelmaking, BlueScope is also delivering strong cost savings across its Australian steel-making business.

“They’re targeting $200 million in cost reductions, which is significant for a company making $1.2 billion to $1.4 billion in EBIT,” says Moran.

Toll road operator Transurban (ASX: TCL) and gas pipeline owner APA Group (ASX: APA) are also set to benefit by turning to cost control after a long focus on major growth projects in recent years.

Transurban has recently completed Sydney’s giant Westconnex motorway system and is nearing the end of Melbourne’s West Gate expansion.

APA has been focused on its east coast gas grid expansion and recently completed the purchase of Alinta Energy’s remote WA power assets.

Now both businesses are turning their attention to costs.

“If they can even keep their cost growth flat for a year in absolute terms, because their revenues are growing at CPI-plus their margins start expanding and that will fall quite nicely to free cash flow and dividends.”

About Anthony Moran

Anthony Moran is an analyst with more than 15 years of experience covering a range of Australian and international sectors. His sector coverage has included Australian Industrials and Energy, Building Materials, Capital Goods, Engineering & Construction, Transport, Telcos, REITs, Utilities and Infrastructure.

He has previously worked as an equity analyst for AllianceBernstein and Macquarie Group, spending a further two years as a management consultant at Port Jackson Partners and two years as an institutional research sales executive with Deutsche Bank.

Anthony is a CFA Charterholder and holds bachelor’s degrees in Commerce and Law from the University of Sydney.

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