5 key questions for Aussie growth companies going global
Companies that are sitting in Australia with offshore earnings can be quite interesting in terms of investment potential. It might surprise people, but over 40% of the revenues of the ASX 300 index actually come from offshore. But for any company going global, there are a few key questions we like to ask before we add a company to our portfolio. In this Q&A, I reveal some of the top Aussie companies taking on the world.
What are the key questions for any Australian companies going global?
We ask five key questions and the first one is how big is the addressable market? Is it likely to grow or shrink over time?
The second question that we ask is what kind of capital base does the company have, then is it able to support this growth both now and into the future? And very importantly, can the company generate a double-digit return on invested capital?
The third thing that we really focus on is the management and the board of a company. Do they have the skillset to deploy the assets of the company? And we're fortunate in Australia that we have a highly skilled labour force. That's really important that a management team and a board can deploy that effectively. So we focus on the quality of the board and the management.
The fourth thing that we look at is, is the board and the management team in terms of the way they run the business are their interests aligned with that of a minority equity holder? Which is essentially what we are when we become an investor in this company. It's really important that their objectives are aligned with our objectives and that they're not just growing for the sake of growing.
And the final thing that's really important clearly is what's in the price? We compare the current share price versus all of these attributes of the company. And we try and work out how much of its future prospects are or are not priced in and good opportunities are when the growth potential and return potential of the businesses have yet to be fully priced in by the market.
What are some of these favourable companies taking on the world?
Australia has many success stories. If you look at the industrial stocks, you've got companies that are global leaders in building products, such as James Hardie (ASX: JHX). You've got Brambles (ASX: BXB), it's also a world leader in palette pooling product. In terms of health care, we've also got a lot of excellent global leaders, you know CSL (ASX: CSL) in terms of blood plasma products. We've also got Resmed (ASX: RMD) in terms of respiratory sleep apnea products and Fisher and Paykel (ASX: FPH) has also got a very compelling Optiflow product that's been particularly useful in this current environment.
Tech stocks have done extremely well, not only here, but globally and Wisetech (ASX: WTC) and Megaport (ASX: MP1) are great examples. And of course, we all know about Afterpay (ASX: APT) doing so well, not only in Australia but also in the US. It's also fair to say our resource stocks are effectively global cyclicals because that's where the demand comes from. So we're spoilt with some riches there in terms of the great companies that have done well offshore
What is one key lesson you have learnt over your career in investing?
25 years as an investment professional has taught me companies with excellent ESG credentials are also the companies that generate better and more sustainable returns. And the stock market often has a knack for taking wealth away and out of the hands of the impatient and into the hands of the patient. If the companies we invest in deliver a sustainable world in terms of environmental and social outcomes with good governance, we're also developing a world that's more sustainable and can have better outcomes for future generations.
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Dushko is Head of the Australian Equities Growth team at First Sentier Investors, and is responsible for managing the Wholesale Australian Share Fund and the Wholesale Concentrated Australian Share Fund. Dushko has over 20 years’ experience in the...