The following is a brief introduction to each of your portfolio companies, with a description of why we believe they deserve a position in the Barramundi portfolio.
Ansell designs, develops, manufactures, and markets a wide range of personal protective equipment (predominantly gloves) for use in various industrial and manufacturing activities and in healthcare. It is essentially an industrial materials business that transforms natural rubber latex and synthetic latex into these value-added products. It is a leading player (#1 or #2) in all its key market segments.
Ansell has an attractive combination of businesses that benefit when the world economy grows and those that enjoy relatively resilient demand even when economies are weak. We expect the company’s earnings to grow over time as better health and safety standards are adopted in emerging markets and as it successfully differentiates its products from the commodity-end of the markets it serves through both branding and product innovation.
Australia and New Zealand Banking Group Limited (ANZ) has significant retail and business banking operations in its home markets of Australia and New Zealand. It has a leading agricultural banking business in New Zealand.
Along with the other major Australian banks, ANZ enjoys a supportive industry structure and has a wide economic moat. The major banks’ scale, capital strength, regulatory expertise, technology and brands constitute significant barriers to entry for potential competitors, allowing the banks to earn healthy returns on their capital.
AUB Group operates a general insurance broking network across Australia and New Zealand that is primarily focussed on the small to medium-sized business market. The broking network is complemented and supported by AUB’s ownership of a range of insurance underwriting agencies and of Tysers, a large London-based wholesale insurance broker.
We like AUB's owner-driven business model where member firms are strongly incentivised to grow. The insurance broking industry remains ripe for consolidation, allowing AUB to be an aggregator of smaller broking firms. The combination of adding more firms to the network, long-term organic growth in the insurance market, and the benefits of scale should drive healthy earnings growth for AUB over time.
Audinate is the leading provider of professional digital audio networking technologies. Audinate’s technology, branded as ‘Dante’, distributes digital audio signals over computer networks. It is sold to and incorporated in professional sound equipment produced by global manufacturers (such as speakers and amplifiers). Dante technology is displacing more expensive analogue networking technology.
Dante technology has become the standard technology globally for digital networking of sound systems. For products from one manufacturer (say speakers) to be digitally networked with products from another manufacturer (say a microphone), both products need the Dante technology. This creates a virtuous circle of demand for Dante technology as more and more sound systems are digitally networked. This acts as a significant competitive advantage and helps cement Audinate’s leading position in the development of the digital professional audio networking market. Analogue systems are at an early phase of displacement. As such, Audinate has a long runway of growth in front of it, which we like. It also has a strong balance sheet (it is in a net cash position) and has the ability to therefore keep investing heavily in innovation and development which could also create further value for shareholders in the future.
Brambles is a supply-chain logistics company operating in more than 50 countries. The group specialises in the pooling of unit-load equipment and associated services, primarily the outsourced management of pallets (CHEP).
Although Brambles is a capital-intensive business it generates attractive returns on capital. It is difficult for potential competitors to replicate the scale of Brambles' pallet pool and its extensive service centre network. Moreover, there is considerable IP in managing the flow of pallets through the supply chain and keeping control of the assets. We expect sound growth from Brambles for many years to come as the penetration of pooled pallets continues to increase in developed markets and as modern supply chains are established in emerging markets.
CAR owns a network of leading classified advertising websites in Australia and internationally including in South Korea, the United States, and Brazil. This geographic breadth diversifies its earnings base and provides it with a broad runway for future earnings growth.
CAR benefits from a wide network-effect moat across its key markets, making it hard for competition to encroach on its dominance. Management has developed a credible track record in replicating CAR’s success in the Australian market in its overseas markets. The company is consequently in a strong position to capitalise on a range of attractive growth prospects in the future.
Cochlear is the global leader in the severe and profound hearing-impaired device market. Cochlear implants allow people who cannot hear receive and process sound and speech.
Cochlear has helped over 600,000 recipients of Cochlear Implants hear again. Yet there remains a significant, unmet and addressable need that is expected to continue to underpin long term growth of the business. It has a long term focussed culture of excellence. It spends 12-14% of revenues on research and development each year, looking for the next advancement in helping people hear again. This too will contribute to its future growth longer term.
Commonwealth Bank of Australia (CBA) operates a leading banking franchise in both Australia and New Zealand and has a strong presence in all spheres of retail and business banking. CBA has built a very profitable portfolio of assets and positioned itself to benefit from key growth areas in the Australian economy. The bank also enjoys an enviable scale advantage in gathering deposits, giving it an important source of stable and low-cost funding.
The big four Australian banks enjoy a supportive industry structure and wide economic moats. Their scale, capital strength, regulatory expertise, technology, and brands constitute significant barriers to entry for potential competitors, allowing the banks to earn healthy returns on their capital. CBA’s significant share in core Australian lending and deposit gathering should ensure it continues to profit and grow over time.
Credit Corp purchases and then collects, on its own account, portfolios of defaulted debt. These are primarily bought from banks. The company has successfully replicated its Australasian debt buying operation in the US. It has also leveraged its understanding of the sub-prime market to build an Australasian consumer lending business that focusses on credit impaired borrowers.
We like Credit Corp's leading market position and strong reputation with Australia’s major banks, which have allowed it a healthy share of the PDL market. The business enjoys a scale advantage versus competitors, has a conservative balance sheet, and is tightly managed. The mature Australian PDL business should deliver sound growth, with the company's burgeoning consumer lending business and US PDL operation providing further significant opportunities.
CSL is a global leader in the development and manufacture of plasma derived therapies, influenza vaccines, and iron deficiency and nephrology therapies.
CSL's therapies address conditions for which drug trials are typically difficult to conduct, giving existing companies with approved therapies a tremendous advantage. As a result, CSL enjoys healthy returns on capital and strong earnings growth over very long product lifecycles. In addition to owning several leading therapies, CSL have historically and continue to invest significant resources in plasma supply and research and development, securing future earnings growth.
Domino's Pizza Enterprises is the master franchisor of the Domino's brand in Australia, New Zealand, France, Germany, Belgium, the Netherlands, Monaco, Japan, Taiwan, Malaysia, Singapore and Cambodia. The company has established a leading position in its key markets by focussing on meeting consumer taste, convenience, and value needs.
Dominos has a long growth runway from the combination of store rollout, same store sales growth and margin improvement opportunities. The company expects to approximately double its store count over the next 10 to 15 years. The business has significant scale, technology expertise and a strong brand, which combine to place it in a healthy competitive position. With meaningful contributions from businesses around the world, Domino's offers quality diversification from the Australian economy.
Fineos is a leading provider of policy administration systems software to the Life, Accident & Health (LA&H) insurance industry. Its Claims product is used by 7 of the top 10 LA&H insurers in the US and 6 of the top 10 insurers in Australia, as well as the ACC in NZ.
LA&H insurers are in the early stages of switching from legacy mainframe centric systems to fully digital solutions like those offered by Fineos. Fineos’s core Claims product is best in class, mission-critical software. Although the COVID environment has impacted the timing with which LA&H insurers will make this switch, technological obsolescence of existing systems will drive adoption. This is the source of Fineos’ long-run earnings growth. Given the quality of its software, and the credibility of its large customer base, it is well-positioned to keep winning contracts and increase penetration within existing clients.
James Hardie is the global leader in manufacturing fibre cement siding, used to clad timber framed homes. It generates the majority of its earnings from the US. It also has a substantial fibre cement business across Australia, New Zealand and the Philippines. It has a mature fibre gypsum business in Europe.
James Hardie is the scale manufacturer in fibre cement with 90% of the entire category in the US, and a dominant position in Australia. It benefits from its significant scale in manufacturing. This scale advantage has enabled it to grow the fibre cement category as a proportion of external cladding for houses for decades in its key markets at attractive and improving profit margins.
Well run under successive management teams, fibre cement’s share of outside cladding continues to grow in the US, offering James Hardie a long runway yet of earnings growth.
Johns Lyng Group is Australia’s leading service provider of insurance building and restoration services. Through its network of 14,000 subcontractors, it provides repair and restoration work for properties damaged by insurable events including: impact, weather and fire events. It is also a top 5 strata management provider in Australia and has a nascent US repair and restoration business.
It is the largest service provider of insurance repair work in what is a fragmented market in Australia. Its national and regional scale afford it the ability to respond quickly, and provide make-safe work and repairs reliably, efficiently and effectively. This has enabled it to grow its share of the Australian repair and restoration market. It’s complemented this baseload of day-to-day repair and maintenance work with make-safe and cleanup work resulting from catastrophe events like the northern rivers floods and Australian bush fires. This work is a big but lumpy revenue opportunity and offers countercyclical upside. Johns Lyng is well positioned to keep growing both businesses.
It is in the early stages of building a similar business in the US and in 2024 it signed its first national insurance deal. The US insurance build and restoration services market is multiples the size of Australia and provides a long runway for growth for Johns Lyng.
Its strong performance-based culture has been key to its growth story. Johns Lyng operates an equity partnership model, where the majority of its 130+ subsidiary businesses are partially owned by management. This creates a strong alignment with shareholders.
MAAS is a diversified industrial business. It operates four distinct business units: construction materials, civil construction and hire, residential property and commercial property. It operates many quarries and concrete plants across New South Wales, Victoria and Melbourne, and supplies aggregate and concrete to the Australian building industry. It also provides construction, equipment hire and electrical transmission services to major infrastructure and renewable projects across Australia.
The location and remaining life of the quarries provides MAAS with a reasonable ‘moat’ and a sustainable competitive advantage. Because of the cost to transport aggregates and the low price-to-weight ratio of aggregates, the location of quarries is very important. The proximity of MAAS' quarries to large civil, residential and commercial construction means MAAS is the lowest cost provider in many regions. It is not easy obtaining permits to build new quarries, nor to expand quarries. This all means MAAS' quarries are very valuable. MAAS is led by a well-regarded and experienced management team, and have deep knowledge of the regional markets that MAAS plays in. There is shareholder alignment across the business with many of the team on the long-term incentive scheme and through that own shares in MAAS. The MAAS team genuinely think like owners and run the company in order to maximise long term shareholder value.
Domiciled in Australia, Macquarie Group is a global financial services company spanning four divisions. The majority of its profit comes from its asset management and commodity & global markets divisions. Macquarie also runs an Australian investment bank as well as a small retail bank.
Macquarie’s strong culture and people development, helped by its global scale has been key to its 50+ consecutive years of profitability – an enviable track record. Macquarie develops expertise and focusses its resources on long-term structural growth areas of the economy (such as the growth in green, renewable energy). As such, it is well positioned to continue growing its earnings for many years to come.
National Australia Bank (NAB) operates a leading banking franchise in both Australia and New Zealand and has a strong presence in all spheres of retail and business banking. NAB has a strong stable of brands supporting its top tier position in both deposit gathering and lending.
The big four Australian banks enjoy a supportive industry structure and wide economic moats. Their scale, regulatory expertise, technology and brands constitute significant barriers to entry for potential competitors, allowing the banks to earn healthy returns on their capital. NAB has emerged from a restructuring with a strong balance sheet and compelling portfolio of opportunities, positioning it well for the future.
Next DC is an Australian data centre business. It currently operates 12 data centres across Australia and has 3 new data centre developments underway. Next DC provides only the data centre infrastructure within which its customers can locate their servers. Its unique proposition is to create a valuable ecosystem within its data centres by assembling a community of customers for whom it makes commercial sense to be in close data proximity.
Next DC benefits from the strong secular growth trends in cloud computing, data use and connectivity. The Australian cloud services market is forecast to more than double in the next 5 years. The growth in demand for cloud services has been accelerated by the COVID-19 crisis. Assisted by this tailwind, Next DC’s earnings should multiply as the capacity of its existing data centres becomes fully utilised and as the capacity of its new data centres comes on-stream over the next couple of years.
oOh! Media is Australasia’s largest Out of Home advertising company. It has over 37,000 digital and static advertising billboards and screens that can be mainly found in or on roadsides, retail centres, airports, train stations, bus stops, and office towers. This extensive network enables advertisers to get their messages to a large number of people as they move about in the course of their daily lives.
The audiences for traditional broadcast media like free-to-air TV and print are shrinking and fragmenting as they are disrupted by new digital media. Against this backdrop, Out of Home advertising remains a very effective broadcast medium as it cannot be avoided by audiences. At the same time, increasing digitalisation of Out of Home sites is enabling more dynamic, real-time messaging by advertisers and more sophisticated audience measurement is confirming to them the returns they are getting on this spend. These factors should enable the Out of Home format to capture an increasing share of the total advertising pie, to the benefit of Ooh! Media.
PWR specialises in manufacturing cooling solutions for global high-end motorsport teams such as Formula One, NASCAR and Formula E. PWR is recognised as a world leader when it comes to high performance cooling, and it has used its expertise to win a number of contracts to provide cooling solutions for high-priced limited run supercar manufacturers such as Aston Martin and Porsche.
PWR has a culture of innovation and invests a meaningful proportion of its revenues back into researching and developing new cooling solutions each year. We think this not only keeps PWR at the forefront of its existing markets but has the potential to broaden PWR’s customer base to include companies in other industries.
REA operates the leading online classified real estate advertising portal in Australia. It also holds significant holdings in similar businesses in the United States, India and Southeast Asia.
In Australia, REA operates in a largely duopolistic market. It benefits from a strong network moat. Close to 100% of real estate agents in Australia advertise for sale and for rent, residential and commercial properties on its portals. Its residential property site, realestate.com.au, has the largest and most engaged audience in Australia with 126m visits per month, and visitors spending 5x more time on realestate.com.au compared to its nearest competitor site. REA is a strong business with attractive growth prospects both domestically and offshore.
ResMed manufactures cloud-connected devices and consumables that are used to treat sleep-disordered breathing (“SDB”) and other respiratory disorders (COPD, neuro-muscular, asthma). It has developed software platforms that use the data from its devices to improve patient outcomes and healthcare ecosystem productivity. ResMed also has a portfolio of Software-as-a-Service businesses that enable healthcare providers to manage patients and deliver services to them as they move between various out-of-hospital settings.
ResMed is the global leader in the treatment of SDB. It has a strong competitive position based on its scale, intellectual property and customer captivity. There is a long growth runway in SDB. The addressable market is large (potentially 20%+ of adults have SDB), growing (ageing & obesity) and under-penetrated (even in the US less than 20% of SDB sufferers are treated). As the number of people on treatment rises, ResMed not only benefits from the initial sale of a device but from a recurring stream of consumable sales that grows as its installed device base increases. As a result, the company is highly cash generative. It is led by a very capable and experienced management team.
SEEK is the largest global online employment marketplace. It operates across Australia, New Zealand, Southeast Asia, China, Brazil, Mexico, Bangladesh and Africa.
In Australia and New Zealand SEEK has a strong competitive position by virtue of being "front of mind" for job seekers. It will continue to benefit from the migration of employment advertising from traditional media to online. Domestically, successful development of new products like its talent search platform will provide high-value new revenue streams. Its international investments give SEEK exposure to faster-growing, less mature employment markets.
WiseTech Global is a logistics software business with a presence in key global regions and key global customers. Their main product, Cargowise One, offers clients a complete suite of logistics services and general business solutions. An early lead in the freight forwarding software domain confers a key technology advantage over competing software systems, increases customer switching costs and establishes a nascent network benefit to participants using its technology.
While increasing trade flows are supportive, customers need better technology to help them manage greater supply chain complexity, comply with more onerous regulation and address vociferous competition. WiseTech is an early leader in an industry with low penetration of a clear internet-based technology solution, making for significant growth prospects should the company retain its leading position in the sphere.
Woolworths Group operates the largest food retailer in Australia. It also operates New Zealand’s second-largest food retailer Countdown and Australian discount department store chain Big W.
Woolworths Group is a leading player in two of the most highly consolidated food markets globally in Australia and New Zealand. This favourable competitive structure and the scale advantages afforded by its extensive store network have underpinned Woolworths’ industry-leading profit margins.
Xero is the market leading provider of cloud-based accounting software for small-to medium businesses and their accountants in NZ, Australia and the UK, with growing presences in the US and other markets such as SE Asia and Africa.
Xero’s software is highly rated, and it continues to pioneer innovative new functionality to attract and retain customers. As a result, Xero has a significant share of the cloud-based accounting software market and is growing subscriber numbers rapidly. The size of the ultimate opportunity for Xero is significant and there are many years of growth ahead given the industry is only in the early stages of migration to the cloud. With a strong disciplined focus on costs and cash generation, Xero's revenue growth should translate strongly into earnings and free cash flow growth in the future. Xero’s small and medium-size business customers globally have been difficult and expensive to acquire but the flip side is the customer base represents a significant sustainable competitive advantage.
