We've recently learnt about the emergence of a new generation of Australian companies that we've dubbed the Offshore Growers. These companies have expanded offshore, and are winning. We've also discussed the seven key factors that have allowed them to succeed. In this final part of the series, we look at how investors can identify Offshore Growers.
In Australia, right now, there is a new generation of Offshore Growers; the next generation of Afterpays, Lovisas and carsales.coms.
Below is a checklist of 12 key questions that will help investors identify potential Offshore Growers. But not only identify them, identify them early: while they are still operating only in Australia, or just beginning their international expansion and still have a massive upside.
The questions will also help investors weed out companies that have some potential but lack the key ingredients for success.
- Does the company have a world class value proposition? (Is the product or service world class?)
- Is the company’s product or service differentiated in the mind of consumers so they’re willing to pay a higher price?
- Does the company have any significant competitors overseas?
- Is the product scalable? If it moves offshore, and sales take off, will it be able to expand so that profit increases faster than revenues?
- Will expanding into another geography diversify earnings and make them smoother, lessening earnings risk?
- When moving offshore, is the company preferring organic growth to riskier large acquisitions?
- If the company is looking to acquire offshore to aid expansion, is it avoiding large transformational acquisitions that create significant risk?
- Is the company hiring local talent offshore with good knowledge of local markets and customers, and strong networks across suppliers, customers and local government?
- Is the country they’re expanding into pro foreign business?
- Is the company appropriately managing forex risk that comes with foreign currency revenue?
- If offshore expansion doesn’t work, can the Australian business absorb the losses, or will it affect its ongoing viability at home?
- Are management committing, not just financial resources, but their own time, to the international expansion?
To maximise returns, and minimise risk, investors need to invest in Offshore Growers at an early stage. Otherwise you end up like most investors who are finally biting the bullet when it’s too late. By this stage the growth prospects of the company may already be largely recognised in the share price.
But for investors willing to do their homework, who understand the 7 key success factors and checklist above to identify the next Offshore Grower, the investment rewards can be significant.
Reaping the rewards
In recent years a new breed of company has transformed the investment landscape in Australia.
Traditionally, when Australian companies expanded offshore, they failed, destroying billions of dollars of shareholder value.
This new breed of Offshore Growers have expanded offshore and succeeded.
As we have seen above, their success is due to a combination of big macro forces, such as technology and trade liberalisation; but also a new way of doing business: organic growth, testing and learning, and a laser-like focus on their value propositions.
That combination has produced explosive growth and explosive returns.
The good news is that a next generation of Offshore Growers are germinating now. The environment is ripe for them. The power of technology, social media, and trade liberalisation have created fertile ground for those companies to thrive globally.
A new generation are ready to throw off the shackles of a limited market and slowing economy. They’re ready to tap into the giant opportunity the world has to offer, and in the process drive big investment returns.
For investors, that growth is vital at a time when constrained economic growth, both locally and internationally, is likely to constrain overall returns from markets as a whole.
The Offshore Growers report gives investors a deeper understanding of the Offshore Growers, and the key factors in their success.
After reading the report, investors will be better placed to identify the next wave of Offshore Growers early.
And be better placed to reap the full potential of returns Offshore Growers offer and to escape the confines of the domestic market
Understand how to predict a company's offshore growth potential
Ophir specialises in identifying and investing in Offshore Growers. For more information on Ophir and to get a copy of the full report please click the ‘contact’ button bellow.
My Super is an Ophir high Conviction fund investor. There are red lights flashing on After pay and you crow about this investment in your letters. I am really worried about this investment. What risk mitigation have you deployed in your fund?
Kahala, could you please explain the red lights flashing on Afterpay. Thanks.
Mahala - thanks for your engagement with our wire. Afterpay is one of around 25 companies we hold in the Ophir High Conviction Fund. Gaining a deep understanding of a company’s broader ecosystem and any potential risks is fundamental to our investment process. As part of this process we stress test the investment thesis of each company in the fund to understand how it would perform if any key risk was to play out. We have held Afterpay in the fund for a considerable period of time and feel we have a strong understanding of the business and the risks involved. Please keep an eye out for our future Meet the Manager sessions where we always devote some time to discussing risk mitigation in the fund.