The 10 best management teams this reporting season

Buy Hold Sell

Livewire Markets

We investors are told time and time again that a company is nothing without a great management team. That founder-led businesses often far outperform those with hired suits. That leaders who continue to exceed expectations are a rarity - and thus, invaluable. 

Considering the mess of a market in which we find ourselves, Aussie companies have proved themselves to be "resilient" - resulting in a relatively "beige" reporting season this August. 

So, which companies have truly come out on top? And why does having the right management team make all the difference?

In this thematic episode of Buy Hold Sell, Centennial Asset Management's Matthew Kidman was joined by abrdn's Michelle Lopez and First Sentier's David Wilson for 10 of the country's best management teams this reporting season, including leaders from the financial, tech, materials, healthcare and industrial sectors. 

Note: This episode of Buy Hold Sell was filmed on Wednesday, 30th August 2022. You can watch the video, listen to the podcast, or read an edited transcript below.

Edited Transcript

Matthew Kidman: Hello, my name is Matthew Kidman and welcome to the Livewire thematic discussion and the noise in the background, that's the siren going for the end of the full-year profit reporting season. Some fund managers around the country are taking Panadol, and others are popping the champagne corks, but they're just glad it's over. 

Normally at this time, we have a look and who shot the lights out and who didn't do so well. This year, we're going to do it slightly differently. We're going to go one step further, and we're going to have a look at management. What management teams did really well, and what did they deliver? We're going to get ready for a lot of stocks in the thematic discussion. Get your pens and paper to write them down.

To help me discuss it, David Wilson from First Sentier and Michelle Lopez from abrdn. Michelle, I'll start with you, give us one word to sum up the whole reporting season.

One word to sum up this reporting season

Michelle Lopez: Resilient. It was better than expected in some ways, and given the headwinds that we've gone into and the uncertainty in the first half of the year, it was actually quite impressive that beats outnumbered misses. It was three to two. And there were probably three key things I'd call out. Costs, surprisingly, were felt across every sector, regardless of what industry they were in as well. The interesting thing though was margins were pretty resilient. They're passing them through for now. The consumer, which was another area that we were looking at for stress, hasn't come through yet.

Matthew Kidman: Strong consumer.

Michelle Lopez: Strong consumer, but caveat that with what's coming. Careful there. And third was sustainability, a lot of information and disclosure around ESG targets and a real call to action there.

Matthew Kidman: Okay, David. A lot of that out there, a lot of interesting moving parts. How did you go on your top 100 stocks?

David Wilson: I would say benign, and if it was a colour, beige. Because not a lot happened. There wasn't any sort of horror stories or war stories. You had dividends actually do a little better than people were expecting. You had some buybacks announced, and there was also some M&A announced through the period. Generally, it's a pretty dull reporting season, to be honest.

Matthew Kidman: The management teams, let's switch to them. The ones that did well, what did they actually nail during this reporting period?

David Wilson: I think what they did was, they were able to enunciate a longer-term strategy rather than avoid the noise: COVID-19 up, COVID-19 down, interest rates up, interest rates down. The ones that can stay on that consistent strategy that this is what we're trying to achieve over the longer term. I think that that was really the sort of winning formula.

FINANCIALS

Michelle's pick: Netwealth (ASX: NWL)

Matthew Kidman: Michelle, let's get into some of the sectors and a stock in each sector. Financials, a big part of our market. What did they do? Who did well there? Which management team?

Michelle Lopez: There was only one bank that reported, CBA, but I'm going to steer clear from the majors and go for Netwealth. This wasn't really an FY22 story. This is 20 years in the making, and Michael Heine has done a superb job. I think what they've done very well is just reinvesting back in the business. Whether it's disruptive technology, whether it's growing out new parts of the market. And that's really coming through in FUM growth. The one thing I'd say is that's consistently played through, it played through in this reporting season, and now he's passed the baton to Matt Heine, his son. And I think he'll continue to generate that compounding return that we've seen from Netwealth.

David's pick: QBE Insurance (ASX: QBE)

Matthew Kidman: Okay. David, got something better than Netwealth?

David Wilson: I think so. I was going to say Steadfast, and Robert Kelly will probably blast me for not saying Steadfast. He's the CEO there. But I'm going to say QBE, and that'll surprise some people. But I think the management is taking a very patient approach to improving the business. They've had 10 years of trauma, but there you've got a very good European business, a very good Australian business, and they're taking the necessary remedies for really what's been a really poor performing North American business. It'll surprise some people given the history of the company, but I think the CEO, Andrew Horton, is doing a great job there.

TECHNOLOGY

David's pick: WiseTech Global (ASX: WTC)

Matthew Kidman: Okay. Let's go to the former darling now ugly duckling sector, tech. Who did really well there in the management space?

David Wilson: Well, they're still a darling, and that was WiseTech. A fantastic result. Revenues were up over 35%. They've given guidance of another 20% revenue growth this year, and this stock continues to deliver. It is really the default freight forwarding software business in the world.

Michelle's pick: Pro Medicus (ASX: PME)

Matthew Kidman: Guidance was something that was missing in a lot of companies, Michelle, but did you have something in that ugly duckling sector of tech that took your eye?

Michelle Lopez: For us, and this isn't exactly in the tech sector, but Pro Medicus, which is a tech software provider into the healthcare sector. Again, just very consistent with David's point around what management teams do well, just consistent execution. This is a company that's got a really long runway of growth. They've got a pre-tax profit margin of 67%. That's profit, not gross margin, which is what tech companies talk about these days. It's generating a truckload of cash, and it's got a really long runway, not just in the Visage product, but also in AI and new departments of cardiology. There's a very long runway there, and they consistently deliver.

RESOURCES & MATERIALS

Michelle's pick: BHP Group (ASX: BHP)

Matthew Kidman: Sam Hupert's done a great job. Now let's get back to a very Australian story, resources and materials. Which management team kicked the goals there?

Michelle Lopez: I think it's going to surprise you, but BHP. This management team are making some transformational decisions within the organisation, which is a big statement to make with a global iron ore leader. Really, you could say that with the asset quality within BHP, the assets run themselves. But there's a lot that can go wrong with mining. Particularly in this environment. We've got high inflation, we've got geopolitical risks, and there's a lot of stakeholders you've got to take along for the journey. They are repositioning. They've got a really high-quality portfolio today. They're generating truckloads of cash and the balance sheet to be able to fund optionality and growth. You've got copper, you've got Jansen. I think they do a tremendous job in the industry around sustainability and working with stakeholders. That was the standout for me.

David's pick: South32 (ASX: S32)

Matthew Kidman: I thought it was a truckload of iron ore, but it's actually cash. David, resources, materials?

David Wilson: Our choice, Matthew, is South32. The son or daughter of BHP from six or seven years ago. What they've been able to do under Graham Kerr's leadership is actually reshape the portfolio. They've sold out of South African coal. They've invested further into the Chilean copper mine, and they've also grown their Mozambique aluminium smelter. They've also been able to get more costs out of their business in Australia and elsewhere. We think they've done a fantastic job in what was really BHP's second-tier assets. They've been able to do exceedingly well over those six or seven years, and that came through in this result.

HEALTHCARE

David's pick: RedMed (ASX: RMD)

Matthew Kidman: Great asset allocation. Another big sector in Australia that we are all very interested in is healthcare. Which management team impressed you there?

David Wilson: Our choice here is ResMed. We think that they've done an incredible job through a very difficult period. Now, sure, their major competitor has had a product recall, and they've benefited from that. But even within that, they've had to manage the sort of chip shortages and supply chain issues. They've actually been able to retain and gain market share through that period because of that competitor's issues. And I think management shone through.

Michelle's Pick: Cochlear (ASX: COH)

Matthew Kidman: Sleep well with that one. Michelle, healthcare, big sector, a lot of good performances. Does anyone stand out?

Michelle Lopez: Well, you'll hear well with this one, which is Cochlear. Cochlear's just one of those companies that you really need to understand how they're set up internally to create long-term value, and this really shone through in this result. To do that, you've got to invest. This is a company that has invested to maintain product leadership. You don't get to 60% global market share overnight. This is a constant reinvestment story. Their R&D budget is the size of the combined R&D budgets of their peers. With this result, they announced the Nucleus 8, which is their next-generation sound processor. Again, quite beneficial for earnings for the next couple of years as customers replace [older models]. The other big investment bucket is building market awareness. The adult market is severely underpenetrated at 5%. Again, there's a really long runway of growth there, and they're investing to build that out, and that makes a lot of sense. What we like about that management team, it's not about FY23 or FY24. They really do take a long-term view. They're very consistent in executing that strategy,

INDUSTRIALS

Michelle's Pick: IPH (ASX: IPH)

Matthew Kidman: Not quite as bionic as Cochlear, but the industrial market, it's a bit broader, a bit more "beige". What did really well there in terms of management and how they delivered?

Michelle Lopez: I'm going to go with the smaller end with IPH. IPH is an intellectual property services business that operates across Asia-Pacific. Under the current CEO, who's been in the seat for five years, Andrew Blattman, who's done a great job not just in BAU, which is a very steady business that they have, but he's also a very shrewd operator when it comes to deals. He's consolidated the market and at this set of results, he announced the acquisition of Canadian business Smart & Biggar. There's a very clear playbook over there - which is what they've been able to do here and extract a lot of synergies from businesses. I think that's a sign of further consolidation to come. That was the standout for us.

David's pick: Brambles (ASX: BXB)

Matthew Kidman: The market really liked that acquisition. David, industrials, big sector. Do you have something that maybe we didn't see?

David Wilson: I'm going to say Brambles. I think what the management team have done is come in and reduced the volatility. They grew earnings by 16%, their sales were up 9%, and they've actually gone about it in a very methodical way over the last four or five years, taking the volatility out, re-cutting the contracts that they have with the large FMG firms in the United States. Taking that volatility out of the earnings and building a more resilient business, I think has actually set up the company very well.

Matthew Kidman: Well, it might have been a "beige" profit reporting season, but there's a pallet load of management teams that you'll want to back on the back of that show. So, if you liked hearing from David and Michelle as much as I did, give it a like, and don't forget to sign up to our YouTube channel.


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