BEST SMALL CAP COMPANY
Domino’s Pizza Enterprises
Asiamoney found Domino’s Pizza Enterprises to be the most impressive small cap stock in Australia in 2012, and the fast food company has continued to deliver this year – whether you are discussing pizzas, profits, strategy or share performance.
This tightly-run licence holder of the US pizza brand boasts a fast-growing business in Australia and New Zealand, despite both being mature markets. Its recipe for this success is a willingness to utilise cutting edge customer servicing techniques, in particular web-based orders.
Ordering online is efficient, less costly, easier to process, and – crucially – customers that order online versus over the phone or physically tend to increase the amount they purchase by up to 20% through special deals and add-ons.
Using such strategies have helped Domino’s, under chief executive Don Meij, enjoy robust profits during the July 2012-June 2013 financial year. The company reported AUD30.4 million (US$ million) in profit, based on AUD848.6 million in revenues for the financial year ending June 30.
The company wants to replicate its success in other markets. It bought a 75% stake in Domino’s Pizza Japan for ¥12 billion (US$122.4 million), which it funded through a discounted equity offering. The 259 store Japanese business is currently the country’s third-largest pizza chain, but Meij believes he can quickly expand its market share.
Despite the potentially dilutive impact of the share offering Domino’s share price has continued to soar. It has risen from AUD10.24 on January 1 to AUD14.22 on August 21. Observers attribute the performance to faith in the company’s management.
“If you have good management and can execute well then there’s always the opportunity for growth and mergers, and that’s something that Domino’s has capitalised on; the management is second to none in that space,” says the head of equity strategy at an international investment bank in Sydney.
BEST MEDIUM CAP COMPANY
FlexiGroup
The move of the Australian dollar from strength in 2012 to weakness in recent months against the US dollar has caught many companies by surprise. Some have managed this exposure better than others. FlexiGroup is one.
The consumer finance company offers a mixture of leasing, credit cards, mobile broadband products and financing programmes, typically offering households money to support home improvement, electrical equipment, fitness and IT, offering these services in Australia, New Zealand and Ireland through 11,000 partners.
FlexiGroup has not been idle in recent times, deliberately diversifying away from small-ticket consumer financing and more into small-and-medium enterprises and low-rate credit cards. It has done so through both organic growth and acquisitions, including Lombard Finance in 2012 and most recently the acquisition of interest-free and finance provider Once Credit in late May.
It was a sensible move. While Australia’s economic outlook and demand for consumer finance faltered on the back of the end of the commodities boom, FlexiGroup’s credit card businesses in particular greatly helped its bottom line.
Overall the financial services company reported a 17.6% rise in net profit to AUD72.1 million for the fiscal 2012-2013 year, above market expectations. Its management is positive it can maintain its financial momentum into 2014, and so are analysts.
“FlexiGroup have been the beneficiaries of a higher Australian dollar over the past 12 months and it becomes a bit more challenging for them as it falls, but they’ve done a fantastic job in strategy and leadership and probably over-delivered versus market expectations,” says the equity strategist.
Investors meanwhile like its policy of paying 50%-60% of profits to shareholders through dividends. Its share performance impresses too, having risen from AUD3.8 on January 2 to AUD4.35 on April 22.
BEST LARGE CAP COMPANY
Amcor
Packaging might not sound like the sexiest business in the world, but done correctly it can be an extremely appealing one. Amcor can attest to that.
The company has become a darling among Australian equity investors, who delight at its ability to continuously churn out profit increases as it benefits from rising global trade patterns. During the 2012-2013 fiscal year all of Amcor’s major businesses—flexible packaging, rigid plastics, and Australasia and Packaging Distribution (AAPD), all boasted profit increases.
Overall the company registered a profit rise of 8.9% for the fiscal year to AUD689.5 million, based upon a 31.7% increase in cash flow, as it benefited from acquisitions and growth in emerging markets, which now represent 30% of its revenues.
Even better for Amcor, the Australian dollar’s recent decline in value makes it even more competitive, which is likely to help its bottom line in the current financial year.
Amcor believes it can unlock further valuation through a corporate restructuring. It is spinning out its AAPD business, which focuses on fibre, glass and beverage can packaging, into its own entity in an effort to unlock more value for its shareholders.
Analysts are generally positive about the move, noting that other mature Australian businesses have unlocked more value through similar restructurings.
Perhaps the only concern overlying Amcor is the extent of its share valuation; its shares have risen from AUD8.15 on January 2 to AUD10.73 on August 22 to give it a price to equity valuation of 21 times, which looks expensive. But chief executive Kevin MacKenzie is confident Amcor has identified further cost reduction areas to further boost profitability. Amcor’s future looks bright.
BEST EXECUTIVE
Brian McNamee, CEO (retired), CSL
Several executives stand out in Australia, including Amcor’s Kevin MacKenzie, Commonwealth Bank of Australia’s Ian Narev and BHP Billiton’s Andrew Mackenzie. But one name was offered by almost all people that Asiamoney spoke to: Brian McNamee.
The longstanding chief executive of medical supply company CSL stepped down from his role in July after 23 years at the helm of the company. He left it in rude health, boasting a 19% rise in profit for the first half of the 2013 calendar year to US$1.21 billion. It is the world’s second-largest blood products maker and a major producer of vaccines.
Observers credit McNamee for building a world-leading company in its field from relatively humble beginnings. He did so through good times and bad, navigating CSL through the Asia financial crisis, tech bubble of 2000 and global financial crisis of 2008.
It looked in trouble in 2002, as its share price fell to AUD11. But McNamee rebuilt its profitability and health, and CSL has offered 15% annualised earnings per share growth for the past 10 years. He did so by focusing on the aging population of most western and increasingly some Asian countries. CSL earns 90% of its revenues outside of Australia. As of August 21 its share price was AUD65.74.
“CSL is a fantastic business that has consistently delivered very strong results. It’s a wonderful space as it’s effectively a global oligopoly with five or six players and they are the biggest market leader and have the lowest costs,” says one Sydney-based head of equity research at a global bank.
The key question for CSL is whether McNamee’s successor Paul Perreault can emulate this enviable track record. “It will be interesting to see whether Paul offers the same subtleties as Brian when it comes to running the business,” says the head of equity strategy.