The Buy Side Brief: Three companies elevating themselves above their peers
Pacific Smiles well positioned to outperform peers
Ed Prendergast, Senior Fund Manager, Pengana Emerging Companies Fund
We would highlight Pacific Smiles as a company which is well positioned to outperform peers in the healthcare sector. The company is the second largest dentistry player in Australia, with a market share of around 2%. The company operates 48 clinics and is rolling out 8-10 new locations per annum. The company’s low market share, and highly fragmented nature of the industry allows this strong growth without any natural ceiling in market share for a long time to come. The company was formed over ten years ago with three clinics in the Hunter Valley, and the founders are still actively involved. Given that the growth relies on the company continuing to expand a business that they have successfully run for over a decade, we believe this growth opportunity is lower risk than others which require diversification.
Acquisitions provide platform for growth at Capilano
Nick Leitl, Senior Portfolio Manager, K2 Australian Absolute Return Fund
Capilano Honey (CZZ) is Australia’s largest packer and producer of honey and is the only listed company of its kind in Australia. Capilano is a well-recognized brand, with a dominant 70% market position supplied by over 500 beekeepers. CZZ is leveraged to the global Health & Wellness thematic, operating in the only growth category in the spreads sector, with demand for honey growing at 5%p.a globally. This is in part due to the well documented health benefits that honey provides and continued product innovation. Currently, 20% of CZZ sales are exported as the demand from the Asian consumer continues to grow via direct online sales channels. Given the AUD weakness, this presents a further opportunity to increase offshore sales. In 2013, CZZ acquired Wescobee, Australia’s major producer of Jarrah honey and in 2015 also acquired Manuka producer Chandler Honey. Both Jarrah and Manuka honey are highly prized and attract significantly higher margins due to their medicinal properties and provides a further platform for growth for the company.
Aconex: A genuine opportunity to become a global leader
John Campbell, Portfolio Manager, Avoca Investment Management
It is rare to find an Australian technology stock with a genuine opportunity to become a dominant global leader in its field. Aconex (ticker ACX) is just that. ACX is a cloud-based software-as-a-service platform for the global construction and project management industries. The platform allows users to efficiently manage the incredibly complex interplay between asset owners, constructors, employees, sub-contractors, and other critical service providers with efficiency and accuracy. It essentially collapses the massive document stream and communication flows that exist on large construction projects down to a single platform and, in the process, ensures error-free compliance and greatly improves the odds of delivering a finished product on-time, on-budget, and within spec. Whilst competition exists, we ultimately believe it is likely that one service provider will become industry standard. With ACX having the biggest R&D spend, and with strong validation recently provided by an enterprise contract win with the world’s most influential engineering construction firm – Bechtel – we believe ACX is well placed to become that industry standard.