I spent a lot of time this week thinking about management quality. It was prompted mostly by a trip to Melbourne to meet with management at some of our investments.
The marrying of exceptionally good management with an exceptionally good business opportunity is the rarest of things. I suspect this is largely what happened with TPG Telecom when David Teoh came along. The industry was ripe for consolidation and he had a very clear idea about how to do it effectively. Starting with SP Telemedia and ISP minnow Chariot in 2008, he has steadily executed and in the space of 8 years, the share price has grown from around 25c to about $10.70, or around a 43-fold increase generating 60% per annum (more if you factor for dividends).
But it is rare to find such business and management quality pushing in the same direction.
Of the businesses I visited in Melbourne, I suspect Heritage Brands is our best hope of combining industry tailwinds with a talented CEO in Con Gendis. The skin-care and organic/ethical/Australian provenance theme could be a major driver and Con has an unusually crisp vision of how to exploit the opportunity.
A couple of the other businesses I spent time with have a potentially less prosperous set up.
One of them I would describe as having a ‘so-so’ business, in that to be successful, it must be run perfectly. Fortunately, management appear to be truly excellent. I have been adding to our position this week and I suspect we will make a lot of money out of this idea in coming years.
Another I would describe as having a potentially truly excellent business and ‘so-so’ management. The type of business where despite no clear, coherent management strategy or obvious plan to execute and deliver, I expect relatively steady growth in both revenues and profits. The great shame about this business is that there is massive insider ownership and the greatest beneficiaries of a better management would be management themselves, so it would be very hard to convince them of this fact.
Fortunately, all three businesses trade on single digit multiples of my FY16 forecast earnings, so very little needs to go right for us to do very well out of them in coming years – Tony Hansen 29/04/2016
|
|
Apr 1st 2011 |
Jul 1st 2015 |
Current Price |
Since July 1st 2015 |
Since Inception |
|
EGP Fund No. 1 |
1.00000 |
1.57872 |
1.72287*1 |
9.13% |
102.63%*2 |
|
37333.23 |
50922.68 |
51718.78 |
1.56% |
38.53% |
EGP Fund No. 1 Pty Ltd. Up by 9.13%, leading the benchmark by 7.57% since July 1st 2015. Since inception, EGP Fund No. 1 Pty Ltd is Up by 102.63%, leading the benchmark by 64.10% all-time (April 1st 2011).
*1 after a 31 May 2013 dividend of 2.333 cents per share (cps) plus 1.000 cps Franking Credit, a 31 May 2014 Dividend of 7.000 cps plus 3.000 cps Franking Credit and a 31 May 2015 Dividend of 8.6667 cps plus 3.7143 cps Franking Credit
*2 calculated based on dividends reinvested
