Looking for small cap stocks with a global footprint

Funds Management

by Carolyn Herbert

Transcription of Finance News Network Interview with AusbilMicro Cap Fund, Small Caps Manager, Tony Waters

Carolyn Herbert: Hello I’m Carolyn Herbert from the Finance News Network and joining me from fund manager, Ausbil is Small Caps Fund Manager, Tony Waters. Tony, welcome back.

Tony Waters: Thanks Carolyn.

Carolyn Herbert: Can you start by giving us a quick introduction to the Fund and what sort of stocks it invests in?

Tony Waters: The Fund is called the Ausbil Micro Cap Fund, and that universe is any companies outside the ASX 200. So typically, we’re looking for good quality companies that are going to have the legs, to graduate into an ASX 200 company one day and provide good growth, for our investor base?

Carolyn Herbert: How long has the Fund been running and what’s the investment style?

Tony Waters: The Fund’s been running a little over six years. The investment style is very much a philosophy around picking stocks that we believe, will deliver earnings growth above market expectation. And to do that, we typically look at companies in terms of very much a qualitative process. In terms of things like good return on capital, good products and services and strong balance sheets, in which to be able to fund growth.

Carolyn Herbert: How is the Fund positioned then?

Tony Waters: We still have very much industrial focus. The great thing in the modern age is you can find a small cap stock, which has very much a global outlook and a global footprint, in terms of where its earnings are coming from. And that means the length of growth potential in those businesses, are much higher than maybe what we would have seen in the past. And we’re trying to populate the portfolio as much as possible, with those types of situations.

Carolyn Herbert: What are some of the Fund’s biggest positions?

Tony Waters: Hansen Technologies Limited (ASX:HSN) is a company that we’ve owned for sometime now. It’s a billing software solution for utilities in pay TV market primarily. And the Telco market is an emerging market for those guys, very high retention rates on its customer base and very high annuity revenue growth, that that business is generating. And again, it’s one of those businesses with very much a global outlook.

Carolyn Herbert: Are there any particular themes that are working well for the portfolio?

Tony Waters: There’s a couple of key things that worked very well for us last year, and we think will continue to work well for us, into the future. And one of those is Australian health products into the Chinese market. Despite there been some views in terms of valuations or over value weights in that market, the reality is that they really are still only on the cusp of the market opportunities in China. So companies like Blackmores Limited (ASX:BKL), companies like A2 Milk Limited (ASX:A2M) as a case in point.

Another key theme that we think still has some way to run, is in the outdoor media space. It’s really the only traditional medium, where we’re still seeing very good growth. And in fact in the digital age, which has been a real disrupter to things like free-to-air TV and newsprint services, outdoor media is still very relevant in the digital age. And in fact, is a beneficiary from static to digital screens and there’s a lot more data that can come out of that.

And we’re seeing 15 to 20 per cent top line growth, out of companies like APN Outdoor Group Limited (ASX:APO), Ooh!Media Group Limited (ASX:OOH) as a case in point. So we’ve done well and we think we will continue to do well, out of positions such as those.

Carolyn Herbert: What new stocks have you added to the portfolio recently and why?

Tony Waters: We’ve recently, a unique situation for us, but we introduced a company called InfraGreen Solutions, which is an infrastructure play. They wind power, which generates green credits, which is going up in value, because of an undersupply of green credits to the market. Where we now have stable political outlook, in terms of where that market is. And we would expect earnings growth in that business, to be quite substantial. And we’re seeing very much an improving business situation, through a company style where they now have a much better balance sheet, than what they did in the past.

RCG Corporation Limited (ASX:RCG) is another company. And that’s a business that’s very much into the athletics leisurewear, when it comes to footwear. And Platypus is a shopfront brand that many of our teenagers and young people, will know about. And that’s gaining a lot of traction in the market, and following on from what we’re seeing globally, as a real positive theme.

Carolyn Herbert: Final question Tony. What’s your outlook for the market going forward?

Tony Waters: I think overall, still we’re going to have issues globally in terms of growth. Having said that, the world is changing at a more rapid pace and there are a number of disruptive technologies, and in business models, which is still generating growth well in excess of what we’re seeing at a macro level. And that really is the focus, stock specific focus, in those businesses that are going to be winners. That are embracing technology, that are bracing new ideas and concepts that are going to take market share.

Carolyn Herbert: Tony Waters, thanks for the update.

Tony Waters: Great, thanks Carolyn.


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