TOL - 18th Oct, 2024
Buy Hold Sell: 5 founder-led companies on the rise
Are all founder-led companies bottom-drawer stocks? Find out in the latest episode of Buy Hold Sell.
Founder-led companies typically outperform their peers over the long term. Driven by a strong alignment of interest, a founder's long-term focus, and emotional dedication to a business's success, companies with founders at the helm are seen to be a safer bet than those with hired suits.
Take Milford Asset Management, for example, which found the three-year performance of the founder-led stocks within their portfolio (23 companies) returned 24.9% per annum against the Small Ordinaries 2.7% to April 2024.
Likewise, Solaris Investment Management found that over the last five years (from 2019 to 2024), the 12 largest founder-led companies on the ASX returned 420% while the benchmark accumulation index only returned 65%.
So, in this episode, Livewire's Ally Selby was joined by two Hall of Fame fund managers in Ellerston's Chris Kourtis and Airlie's Matt Williams for their analysis of five founder-led companies.
Are these bottom-drawer stocks, or should these founders get the boot? You'll find out in this episode of Buy Hold Sell.
Note: This episode was recorded on Tuesday 8 October 2024. You can watch the video, listen to the podcast or read the edited transcript below.
Edited Transcript
Ally Selby: Hey, how are you doing? And welcome to Livewire's Buy Hold Sell. I'm Ally Selby, and today we're joined by two Hall of Fame investors for their analysis of five founder-led companies. Are these bottom-drawer stocks or should the founders get the boot? To find out, we're joined by Chris Kourtis from Ellerston and Matt Williams from Airlie.
Okay. First up today we have Harvey Norman. It was co-founded by Gerry Harvey and Ian Norman in the 1980s. It's now run by Gerry Harvey's wife, Katie Page. Chris, I'm going to start with you today. Is it a buy, hold, or sell?
Harvey Norman (ASX: HVN)
Ally Selby: Its earnings per share is expected to grow about 13% in 2025, despite those cost of living pressures that Chris mentioned. Matt, over to you. Is it a buy, hold, or sell?
Matt Williams (SELL): I'm with Chris on this as well, it's a sell. It has had a great run. It's got a great property portfolio, and it's a good business, but what concerns me is it continues to leak market share over the medium term to players like JB Hi-Fi (ASX: JBH). So, I'm going to say at this point, given the run it's had, it's a sell.Charter Hall Group (ASX: CHC)
Ally Selby: Next up today we have Charter Hall Group. It's had a truly terrific year. Its share price is up 74%. Is that one a buy, hold, or sell?
Matt Williams (HOLD): I'm going to say hold, because of the run it's had. And I own it in the funds, but I like the fact that the management is guided to a much better future. There's capital interested back into office. Valuations seem to be flattening out. So, if this is not the bottom of the office situation, then we're not far off it. But it has had such a great run that it's a hold from here.Ally Selby: This one's not founder-led, but it is run by David Harrison. He's been there for 20 years and he helped list the company. Do you think this one's a buy, hold, or sell?
Chris Kourtis (SELL): I'm going to say sell. And I think there are better ways to skin the property cat, if you like. I worry when businesses start to stray from their core competencies - It wasn't that long ago they were branching out into funds management and they acquired a stake in Paradice. And don't mention the war - they don't talk about that anymore. I look at valuations, three times price-to-book. I think they'll struggle to achieve market estimates and expectations.News Corporation (ASX: NWS)
Ally Selby: Okay. Next up today we have News Corporation. It was established by Rupert Murdoch in the 1980s. It was once the biggest media company in the world before the split in 2013. Chris, is it a buy, hold, or sell?
Chris Kourtis (BUY): I don't own it, but my gut feeling tells me it's a screaming buy. I look at the composition of News Corp and the sum of the parts, and it's a huge discount. The main value is obviously REA (ASX: REA), and they've misstepped with Rightmove (LON: RMV), but then they backed off after four bites to the cherry. I look at the other parts of the business, and you're getting Dow Jones, the print media, Foxtel and everything else for next to nothing. So, it's a classic big discount to the sum of parts, and I think Lachlan and his team are doing a really good job executing. So I think it's a buy, but I don't own it.Ally Selby: Okay. Over to you, Matt.
Matt Williams (BUY): I couldn't have said it better. We do own it at Airlie. It's a buy. The other thing that we quite like is the fact the company has highlighted that it's looking at its structure. It's looking at ways to increase shareholder value by mixing up the structure a bit. We didn't like the REA [attempted takeover of] Rightmove.Chris Kourtis: It was the wrong move.
Matt Williams: It was the wrong move. But other than that, it's definitely a buy.Ally Selby: Okay. We asked our guests to bring along a founder-led company they'd be backing today. Other than News Corp, what are you backing?
Reece (ASX: REH)
Matt Williams (BUY): It's a smaller portion of the portfolio than it's ever been, but Reece. It is the granddaddy of all founder-led companies, in my opinion. Or the Godfather, maybe that's a better description. It's just been such a fantastic company and investment. Its share price is up 76 times since the mid-90s. It's a 76-bagger. It's been run by the Wilson family who still own over 60% of the company. They've expanded into the US, which has given them another growth platform. It's a real bottom-drawer stock. The market has discovered it, the valuation is high, so you've got to put it away and forget about it.
Ally Selby: Okay. Do you have a better pick than Reece?
Premier Investments (ASX: PMV)
Chris Kourtis (BUY): Matt talks about the Godfather and the Wilson family, but I think I can do better than that, and that's Solly Lew. That's Premier Investments. And I've never seen anyone so hands-on in running a business and getting involved. And it hasn't been a 76-bagger, but I look at the last 10 years and the stock's gone from $6 to $36, and now back to $30 just recently.I look at the fundamentals of the business - pristine balance sheet, $400 million cash on hand, or whatever the number is these days, oozing with franking credits, $300 million of franking credits. They've got a billion-dollar investment in Breville (ASX: BRG). They're also looking a bit like News Corp in unlocking value, and they've talked about de-merging Smiggle and Peter Alexander. And they've pushed that out because they're focused on the merger between Myer (ASX: MYR) and their apparel business, Just and Dotti and Portmans and all the rest of it, which is the focus.
So, I think once they've bedded that down, they'll move on to looking at the de-merger structure. And you'd just bet with Solly, never against him. He's certainly the best retailer in Australia, but I'd say he's probably one of the best in the stratosphere.
Which founder-led companies are you backing?
Let us know in the comments section below.
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Buy Hold Sell is a weekly video series exclusive to Livewire. In each episode two fund managers give their views 'Buy, Hold or Sell' on five ASX listed companies. Not recommendations, please read the disclaimer and seek advice where appropriate.
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Livewire Markets
Buy Hold Sell is a weekly video series exclusive to Livewire. In each episode two fund managers give their views 'Buy, Hold or Sell' on five ASX listed companies. Not recommendations, please read the disclaimer and seek advice where appropriate.
Expertise
Livewire Markets
Buy Hold Sell is a weekly video series exclusive to Livewire. In each episode two fund managers give their views 'Buy, Hold or Sell' on five ASX listed companies. Not recommendations, please read the disclaimer and seek advice where appropriate.
Expertise
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