Ask a fund manager
The Motley Fool chats with fund managers so you can get a glimpse of how professionals think. In this edition, NAOS Asset Management portfolio manager Robert Miller reveals 2 ASX stocks he loves and which operate in very different sectors.
The motley fool: How would you describe your fund to a potential client?
Robert Miller: We offer a boutique fund management business that focuses on ASX-listed industrial products, with an emphasis outside of S & P / ASX 50 Index (ASX: XFL). Our motto throughout the company is ‘Belief, Long Term and Aligned’.
We are very focused on what we are doing. We currently only hold around twenty positions in all of our global capital.
We are long term investors. All of the shareholder funds that we currently manage are structured as listed investment companies. This allows us to be patient and to have a disciplined investment strategy, which is generally an investment period of more than 5 years that we are considering.
Another big issue for us is alignment. We therefore strongly believe in investing in companies alongside founders and management teams who themselves hold significant stakes in these companies.
These are our 3 key points. We only focus on industrial type activities and we also have a strong ESG focus internally.
Our ASX equity portfolio
MF: Can you name some of your holdings and why you like them?
RM: The one I’m going to start with is COG Financial Services Ltd. (ASX: COG), which is an asset finance, aggregation and brokerage group. It is Australia’s largest fundraising and asset brokerage aggregator. It therefore holds approximately between 17% and 20% of the market.
We believe this is a very difficult asset to replicate in terms of the distribution footprint. So if you think about what’s happened with the mortgage and insurance industries, to use two examples, there is clearly a middle channel where brokers are the vast majority – or have a very large influence.
We believe that asset finance follows the same trajectory as the other two sectors, and COG is very well established in this market, being the most important in what it does. So this gives them the opportunity to sell other products over time as the asset funding relationship between client and broker can be very strong.
A typical product would be, say you had to buy a bit of yellow kit for farming or construction – and you need a tractor or ute, then COG, through their network of brokers, is the one to organize. funding for it.
I have already mentioned insurance and obviously the key to this market, one of the keys is Closed here in Australia. And some of the ex-Steadfast people, including Cameron McCullagh who set this up, are involved in COG. So there is this flavor.
They had a really good FY21 but I think there is still a long way to go in terms of the underlying tailwinds that we see in a lot of the industries that they operate in. Obviously, agriculture is strong, construction and housing and so on, this should be relatively strong over the next few moments.
All these factors, as well [as] the stimulus around the instant active radiation programs should all be beneficial to the COG in the medium to long term.
MF: And the other?
Again, this is not necessarily our biggest but an important one for us is Big River Industries Ltd (ASX: BRI). They are in fact [an] company over 100 years old, despite listing on ASX in early April 2017, I think it was.
It is a building materials and distribution company. And if you think about Bunnings and Tab 10… They are mainly retail businesses. This is a business only, so there is absolutely no retail store footprint.
Like I said, they supply and distribute building materials. Say lumber and firm, plywood and formwork, and architectural products. They have about 22 locations across the country at the moment where they sell products. And they also have manufacturing operations, where they manufacture niche products like formly and some architectural products.
We believe this company is run by a great CEO who knows all about this area. And we think there is a very big opportunity to grow from here. Like I said, they’re only 20 years old in terms of the sites they operate. It’s a very, very big [addressable] Marlet. We believe, for example, that they only have one site in Sydney. Their peers would have much more than that in terms of sites per capital. So there is a long way to go in terms of the benefits of site mergers and acquisitions, as well as the ability to derive strong revenue synergies from them, for example by buying a new site, an existing site that fits in with the rest of the group. , you then have the option of selling all of your existing products and distribution capabilities to that new asset that you have purchased. In turn, you get margin expansion with scale, and we’re starting to see that now materialize across the BRI group.
Second, the construction cycle peaked in 2017 and has been declining since then. And I certainly think with the example of [government program] HomeBuilder, there’s obviously been a lot of building approvals lately. Much has not changed yet. We therefore believe that the construction cycle is here to last in the medium term. It’s definitely on the uptrend and it should benefit Big River.
MF: It also gives a dividend.
RM: Yes. As I said at the start, this is a 100+ year old company and has been paying dividends for a very long time, through many, many cycles. For us, it’s a big factor that the business is able to survive all kinds of cycles and certainly thrive in some as well, as we are seeing right now.