Tim Hannon, Chief Investment Officer at Newgate Capital, is concerned about the technology sector in Australia. “The level of analysis done on these companies is actually quite poor. The (funds management) industry in Australia really don’t have a great tech background, and they’re analysing and floating companies where we don’t think they got a good level of understanding.” Add to this the fact that a lot of these companies are very early stage, and trading at high valuations; “it’s a recipe for disaster in our opinion, and we would avoid the sector,” he said. Watch the full interview below.
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Generalised assertions only with no evidential basis being proffered
Very much agree. That's not to say each deal shouldn't be considered on its merit- this is what a good stock picker is meant to do- but yes, too little attention presently afforded to recurring revenue. Look for proven technology, proven management, proven revenue. I think the comment that not even 1 in 10 will survive is hyperbolic, but the point remains that there will be some trauma in the future. While Tech is around 0.8% of the ASX200 it is more than 20% of the S&P500. Australian portfolios are woefully underweight tech and the uncorrelated performance it can generate. The problem is that this has resulted in companies coming to market prematurely- with more an idea than a sustainable business model. So they will fail, good companies will suffer contagion, and savvy stock pickers will pick up some oversold bargains...which sounds very much like how the market has always operated, with the only certainty being that the 0.8% will be 3, 4 or 5 times that size in 10 or 20 years. Baby and bathwater
Thanks for the comments. Obviously I can only be general with such a short video. It was meant to be a word of caution, that's all. We have seen some very poor quality business models come to the market with very high valuations, not a good combination for investors.
Hi Tim, I agree with your sentiments and the moves from the ASX about potentially placing higher 'quality' hurdles for new tech IPOs speaks to your message. Perhaps, a closer inspection would be a good follow up piece for one of your more detailed monthly reports. It appears to be an issue that is worthy of further discussion. As always thanks for your contribution to the platform. James
Thanks James, we are compiling a detailed report on the 'sector'. We look forward to sharing with you.