K2: Spotless attractive medium term prospects

Spotless is a leading provider of integrated facility services in Australia and New Zealand. Spotless has dominant market industry positions, good revenue visibility driven by long term contracts of 5-10 years and very low customer concentration with no single client representing more than 5% of turnover. We are attracted to Spotless at this point in the cycle as it offers a dividend yield that is double the 6 month term deposit rate. In addition, we believe that Spotless has the capacity to grow its dividend per share by at least 7% per annum over the next 5 years. The medium term prospects for Spotless look attractive primarily since we expect growth in the outsource penetration rate. In Australia, the outsourced facilities services market is forecast to grow by around 8% over the coming 5 years. This level of growth would lift the outsourced component of the Australian facilities management market from 47% to 54%; still well below the global market average of 65%. In addition, we believe that Spotless can make further strategic bolt on acquisitions.