Infrastructure services provider Ventia (VNT) has been added to Morningstar’s global best idea’s list in April, pushing out wide-moat pallet provider Brambles (BXB).

The best ideas list – available in full to Investor subscribers – aims to identify high-quality companies which are currently trading at discounts to their assessed fair values. Out of nearly 200 Australian and New Zealand companies under Morningstar coverage, just 12 made the list this month.

Ventia Services Group (VNT)

  • Star Rating: ★★★★
  • Fair Value Estimate: $3.60
  • Economic moat: None
  • Uncertainty rating: High

This month marks the first time Ventia has made Morningstar’s best idea’s list since listing on the ASX in November 2021.

Ventia is a leading infrastructure maintenance services provider in Australia and New Zealand, spanning defence and social infrastructure; infrastructure services; telecommunications; and transport. It services 50% of the private motorways and tunnels in Australia, and over 70% of defence sites.

Ventia’s addition to the best ideas list follows a strong March for the stock, with shares up around 11% over the month.

But equity analyst Mark Taylor says no-moat Ventia is still trading well below Morningstar’s fair value estimate at a compelling price–earnings ratio.

”Perhaps this simply reflects the large vendor shareholdings overhanging the market since the IPO. Our EPS [earnings per share] projections equate to a low-double-digit nominal P/E and an attractive fully franked yield of nearly 7% in 2023,” he says.

Taylor points towards Ventia’s policy to pay out between 60% and 80% of net profit after amortisation as dividends to shareholders as another investor drawcard, as well as other factors.

“There is a favourably repeating-income aspect to the Ventia investment proposition, with maintenance cash flows somewhat defensive, and capital requirements typically low.”

“Over the next four years, macro tailwinds including population growth, outsourcing rates, and environmental regulations, meaning Ventia expects its addressable market in Australia and New Zealand to grow.”

Brambles (BXB)

  • Star Rating: ★★★
  • Fair Value Estimate: $14.00
  • Economic moat: Wide
  • Uncertainty rating: Medium

As Ventia pops onto the best ideas list, global logistics giant Brambles (BXB) has been removed.

Like Ventia, it’s been a strong year-to-date for BXB shares, which are trading 12% up on their January price. That rise includes a substantial 7% one-day jump in February, following a strong half-year report.

Wide-moat Brambles, which provides a pool of reusable pallets, crates and containers, has made the list several times in recent years, but Morningstar analyst Trevor Huynh says after the recent price appreciation, shares in the company are back in 3-star (fairly valued) territory.

“We see more attractive investment alternatives elsewhere. Nevertheless, our investment thesis on Brambles remains robust with the current short-term environment remaining short of pallets.”

“The business continues to experience strong demand for pallet services and achieve strong pricing outcomes. Brambles' dominant regional market shares, defensive revenue exposures, strong capital allocation, and the ability to generate attractive returns on invested capital underpins its wide economic moat,” he says.

Shares in Brambles are trading at a 4% discount to Morningstar’s fair value estimate of $14.00.