7 steady ASX compounders with fundies’ tick of approval

A few weeks ago, I came across a Canadian newspaper clip that caught my eye: Bank of America (BofA) had just published a fresh update of its ‘Global Steady Compounders’ list.

On it were the usual American titans, including Costco, Visa, Eli Lilly and Microsoft. Three Canuck companies also made the cut: heavy-equipment dealer Toromont, mining royalty giant Franco-Nevada, and niche software acquirer Constellation Software.

BofA’s screen highlights companies that have delivered consistent profit growth, stable earnings revisions and reliable share price performance over the past decade.

But the ASX aficionado in me couldn’t help but wonder: where are the Aussie companies? My guess is the Americans simply forgot about us!

So, I turned to four fundies to build an Australian version: 

• Centennial’s Michael Carmody
• Alvia Asset Partners' Chris Scarpato
• Katana Asset Management’s Romano Sala Tenna
• TenCap’s Jun Bei Liu

I asked them two simple questions: what makes a steady compounder, and which two ASX stocks best fit the bill? Read on for their picks.

Michael Carmody, Centennial Asset Management

What makes a steady compounder?

We would define a “steady compounder” as a company with a demonstrated ability to consistently deliver three key long-term outcomes:

1. Strong, sustainable earnings growth;
2. Consistent free cash flow growth; and
3. Returns on invested capital that exceed the company’s cost of capital.

Other characteristics include high levels of recurring revenue, fixed-cost leverage and expanding operating margins.

We also believe that founder-led, innovation-driven businesses tend to generate sustainable outperformance by effectively balancing investment for growth and shareholder returns through a business cycle.

Companies that achieve these outcomes over extended periods typically navigate economic cycles well and create significant shareholder value.

It is important to note that owning a “steady compounder” doesn’t eliminate the risk of short-term volatility, but it does normally deliver long-term share price outperformance.

Compounder pick #1: Pro Medicus (ASX: PME)

Pro Medicus is a medical imaging software provider. The company’s core product, Visage 7, delivers increased image-viewing speed, which has enabled the company to secure numerous significant, high-profile hospital contracts in the US.

PME has established a track record of delivering consistent revenue and earnings growth over the past decade. Pro Medicus won its first major US client in 2013 and has since continued to win new business in local and international markets.

Specifically, revenue and earnings CAGR since 2022 have been 23% and 27%, respectively. The company has not raised capital during that period, has no debt and has approximately $216 million of cash on its balance sheet.

The company is well positioned to deliver ongoing, consistent growth over the next three to five years. With an estimated market share of only 10% in the US, the opportunity for further market penetration remains significant. PME is forecast to deliver substantial organic growth for shareholders as broader market adoption grows.

Importantly, in its recent FY26 result, PME confirmed the retention of all six contracts that were up for renewal during the year, despite competitive pressure. The strong contract retention rate is evidence of high customer satisfaction and underscores the value customers derive from PME’s products.

PME had $1.3 billion of signed forward contracted revenue at June 2026, up 41.3% on a year earlier and, importantly, almost five times FY26 revenue.

Compounder pick #2: Codan (ASX: CDA)

Codan designs and manufactures reliable electronic solutions for a range of technically complex industries. The company’s core sector exposures include metal detection and communications. Codan was founded in 1959 and sells products in more than 150 countries.

We believe CDA’s established technical capabilities and history of innovation provide a solid foundation for further market penetration and long-term earnings growth.

CDA recently delivered another strong earnings performance, with revenue climbing 30% and net profit growing 69% in FY26. In addition, the company raised its dividend and strengthened its balance sheet by moving to a net cash position.

CDA has demonstrated an impressive track record of consistent earnings growth over an extended period. Specifically, revenue and earnings CAGR since 2020 have been 16% and 18%, respectively. Looking ahead, CDA’s ongoing product innovation and growing market penetration are expected to be the core drivers of its long-term earnings growth.

One of the key reasons for our confidence in CDA’s earnings growth outlook is its strong positioning in the unmanned communications market. We expect new product applications to support increasing demand from defence customers.

Pleasingly, Codan upgraded its earnings guidance on 29 September, lifting its FY27 Communications growth target to 30–40%. The shares responded by jumping as much as 21% on the day.

Romano Sala Tenna, Katana Asset Management

What makes a steady compounder?

Consistent and predictable EPS growth is the true hallmark of a genuine compounder. 

And the emphasis is on EPS – Earnings Per Share. 

Many companies grow by buying profit. The bottom line may grow, but after dilution the story is often very different on a per share basis.

But even EPS Growth itself is the product or result of actual’ characteristics’. In the same way as a high return on invested capital or pricing power are really the symptoms or hallmarks of a compounder.

To understand compounders, we need to ask what creates consistent EPS growth. high ROIC and pricing power?

Ultimately it comes down to a sustainable competitive advantage of some form. 

Some common advantages we look for are superior management or culture, economies of scale, constant innovation, patents, intellectual property or regulatory protections, unique assets, the network effect, switching costs and brand or reputation.

We also need to see a long runway or large TAM (total addressable market) for the company to be able to continue to compound into the future.

Compounder pick #1: Cuscal Ltd (ASX: CCL)

Cuscal Ltd is a standout compounder in our portfolios. CCL provides critical payments infrastructure that benefits from the continued growth in digital transactions. 

Its embedded relationships with banks and fintechs, regulatory licences and complex technology create meaningful barriers to entry and high switching costs. Transaction volumes continue to grow, while acquisitions such as Indue and Paymark expand its scale and capabilities. 

With FY26 underlying EPS up 20%, Cuscal has a strong platform for continued earnings growth.

Compounder pick #2: Lovisa Holdings Ltd (ASX: LOV)

We also see Lovisa as a strong compounder because it combines a scalable store rollout model, strong brand recognition and attractive store economics. Its vertically integrated model allows it to design, source and merchandise its own products while responding quickly to fashion trends. 

With 1,136 stores across more than 50 markets, Lovisa still has a long runway for international expansion, particularly in Europe and North America. Continued store growth, high margins and strong cash generation support sustained earnings growth.

Chris Scarpato, Alvia Asset Partners

What makes a steady compounder?

As the saying goes, revenue is vanity, profit is sanity and cash flow is reality.

To identify a steady compounder, you need to look beyond the profit and loss statement, which can be prone to “creative accounting”. We look for those franchises that have a durable competitive moat, which is reflected in free cash flow growth and consistency.

The second important factor is what the company’s board and management team does with these riches of cash flows. Our preference is for long-tenured senior management teams, with incentives aligned with shareholders and key stakeholders – the right environment for long-term thinking and wealth creation.

This typically encompasses finding the right balance between returning capital to shareholders, in the form of dividends and opportunistic share buybacks, and reinvesting capital in the business at superior rates of return to keep the “flywheel” in motion.

Compounder pick #1: News Corporation (ASX: NWS)

A portfolio of media and digital franchises with leading positions and strong competitive moats, including a ~61% stake in Australian real estate portal REA Group, financial and business intelligence company Dow Jones, publisher HarperCollins and leading newspaper mastheads.

A strong competitive position leads to durable pricing power, seen at the group’s largest businesses, REA and Dow Jones. 

Strong and consistent free cash flows have enabled management to return capital to shareholders through buybacks, coupled with executing on accretive acquisitions.

Compounder pick #2: ResMed (ASX: RMD)

The Farrell family roots run deep, with father Peter and son Mick being the only CEOs since the company’s founding in 1989.

Over this time, the enduring focus has been on establishing a leading position in addressing a serious and largely undiagnosed health issue, sleep apnoea. 

A focus on reinvestment, from research and development to manufacturing capabilities, has seen the group establish the leading global position in CPAP devices and masks, delivering decades of earnings and free cash flow growth.

Jun Bei Liu, TenCap

What makes a steady compounder?

For me, the two essentials are a lasting competitive advantage and the ability to reinvest at attractive returns. 

I want a product customers genuinely need, where replacing the provider is costly or disruptive. That makes revenue more dependable and gives the business room to grow alongside its customers.

The second test is what happens to the next dollar of profit. Can management reinvest it in products, capabilities or new markets and generate more earnings and cash flow per share? Growth alone isn’t enough if it consumes excessive capital without improving shareholder returns.

Importantly, a steady compounder isn’t necessarily a steadily rising share price. At TenCap, we distinguish between the underlying business and the valuation. The opportunity is finding durable earnings growth at a price that doesn’t fully reflect it.

Compounder pick #1: TechnologyOne (ASX: TNE)

TechnologyOne has the combination I look for: essential software, recurring revenue and several avenues for growth. 

Its systems support the day-to-day operations of councils, universities and government agencies. I see that deep integration as an important competitive advantage: changing providers is a major operational decision, not simply a comparison of software prices.

What gives me confidence over the next three to five years is that it can grow by both winning new customers and selling more products to existing ones. Annual recurring revenue increased 17% in its latest half-year result. UK expansion, SaaS+ adoption and new functionality provide further opportunities, while increasing scale should support margins.

Crucially, it continues investing in its products rather than sacrificing its future competitiveness to maximise today’s profit.

Compounder pick #2: Cuscal (ASX: CCL)

Cuscal offers a different route to compounding: the infrastructure behind everyday payments.

It provides banks and fintechs with payment processing and connectivity that would be expensive and complex to replicate. Its regulatory licences, scale and longstanding customer relationships are important competitive advantages. I also like that it supports its clients rather than competing with them for retail customers.

Over the next three to five years, I see opportunities from growing digital and real-time payments, new customers and spreading technology costs across a larger business. The Indue and Paymark acquisitions add capabilities and scale, although successful integration is essential.

FY26 organic transaction volumes increased 6%, alongside 20% underlying profit growth. The investment case is continued organic growth and improving efficiency, not simply relying on the next acquisition.

Bonus mentions

Our fundies had a few more names up their sleeves.

Romano Sala Tenna also highlighted Dicker Data (ASX: DDR) and Generation Development Group (ASX: GDG), although he believes the latter still has “some work to prove itself” before earning compounder status.

Jun Bei Liu, meanwhile, joined Michael Carmody in backing Pro Medicus (ASX: PME), pointing to its 100% customer retention in FY26 and substantial runway for further US growth.

Perhaps a couple of names for BofA to consider next time around. But getting onto a compounders list is one thing; staying there is another.

In the next wire, we flip the question around and reveal the ASX names our fundies believe are at risk of losing their status – or perhaps never deserved it in the first place.