AMP, CSR and News Corp are among eight companies Credit Suisse believes are ripe for a shake-up by activist investors.
While the active versus passive debate rages – with passive index funds easily outstripping the performance of most high-fee active managers – activist investing has been the top hedge fund strategy, delivering an annualised return of more than 7 per cent, Credit Suisse said.
As a strategy, activism investing comprises value investors who agitate, often vocally, for capital returns and often encourage companies to lift productivity by divesting assets.
The high-profile and aggressive hedge fund Elliott Associates is currently waging a restructuring campaign against BHP Billiton, which has garnered significant attention.
Credit Suisse has identified AMP, BHP, Caltex, CSR, Fletcher Building, Lend Lease, Myer and News Corp as ASX-listed firms with potential for shareholder agitation.
"These stocks are cheap, these stocks can support accelerated capital returns, and these stocks can divest assets to be more productive," Hasan Tevfik, head of Australian equity research at Credit Suisse, said in a note to clients.
"Our activist opportunities in Australia trade on an average 12-month forward P/E of 14.1x and a FCF yield of 7.4 per cent. The market median is currently 16.9x and 5.6 per cent."
BHP Billiton, CSR, Lend Lease and News Corp are among those with potential asset divestment opportunities.
AMP, BHP Billiton, Caltex, CSR and Lend Lease have upside to their current sum-of-the-parts (SOTP) valuations.
And a merger between Myer and David Jones could unlock further value and a distribution of Caltex franking credits could also help.
Extra value
Credit Suisse thinks an activist shareholder strategy could extract 27 per cent of extra value from these stocks, an equivalent of $27 billion in total.
While Elliott's BHP play has dominated headlines, Ardent Leisure is also facing pressure from the Ariadne Australia, the US-based directors of which requested board seats earlier in May.
According to a statement to the Australian Securities Exchange, Ardent is considering the appointment of two US-based directors to reflect the growth of its North American business, Main Event.
Further, activist investor Mark Carnegie and Perpetual have walked away from their attempts to break up the Washington H. Soul Pattinson and Brickworks cross-ownership structure.
The agitators were hoping to return proceeds of a 27 per cent stake that Soul Patts owns in TPG to shareholders and appointing a new director to the board of Brickworks.
"We have long thought Australian funds management was underweight activism and now this seems to be correcting," says Mr Tevfik.
"The hedge fund style has been one of the best performing globally and this should ensure the strategy will continue to grow in Australia."