The Cheapest Large Cap Stock

It seems to me this stock is suffering from what I call Failed IPO Stag Profit Boredom Syndrome.

Somewhere in the media it was stated that this was the largest government IPO since Medibank Private and the largest private IPO on record.

I'm not sure if the latter is correct, but that doesn't detract from this being a very substantial issuance of equity no matter which way it is viewed.

It is therefore quite evident that, probably because the stock is trading below issue price (or, maybe, despite it), that there has been a significant degree of indiscriminate selling of IPO stock that was placed to investment institutions with "hot hands".

As a result, this has left the stock trading on a P/E multiple of 13x and an EV/EBITDA multiple of just 6.2x.

Those modest valuation multiples for a durable, highly-cash generative business with a strong competitive position, impossible-to-replicate infrastructure, and a long operating track record.

This, to me, is by far the mist under-valued large cap stock listed on the ASX today.

It reminds me of where ORG found itself some two-and-a-half years ago; unloved after it had to undertake a monster equity raising ($2.5bn, which was equivalent to roughly half the market value of the company at the time) in the preceding months, and where a lot of that issued stock was promptly recycled back into the market.

ORG's share price has more than doubled since then, and while I don't expect VEA's share price to do the same, it does appear to me that there is ample scope for a 20% re-rating of the stock once some of the non-discerning selling has completed.

VEA is sure to be included in several large cap indices in coming months, which is certain to induce some marginal buying of the stock.

It feels like a no-brainer to me: 15% to 20% upside by the end of the year, with minimal residual downside risk.