Buy Hold Sell: 5 founder-led mid-caps

They say that behind every great business is often an even better management team.

We're told to invest in people rather than the business, to find leaders with "skin in the game," and, better yet, to back businesses led by founders themselves.

So, in this episode of Buy Hold Sell, Livewire Market's Bella Kidman is joined by WaveStone Capital's Catherine Allfrey and Elston's Bruce Williams for a look at five local founder-led businesses. 

We'll put a spotlight on Seek (led by co-founder Andrew Bassat), the eponymously named Goodman Group (led by Gregory Goodman), Flight Centre (led by co-founder Graham Turner), Mineral Resources (led by Chris Ellison) and WiseTech (led by Richard White), to figure out whether founder-led really is all that. 

Note: You can watch, read or listen to the discussion below. This episode was filmed on 9 June 2021.

Edited Transcript 

Bella Kidman: Welcome to Buy Hold Sell, brought to you by Livewire Markets. My name is Bella Kidman and if you're anything like me, you've probably heard the saying, "Good management teams equals good companies," and who better in a management team than the founders of the companies themselves. Well, today we're putting that theory to the test and we'll be discussing five founder-led Aussie mid-cap stocks. To talk to me about it today, I'm joined by Catherine Allfrey from WaveStone and Bruce Williams from Elston. 

Bruce, I'll start with you. We'll start off with Seek founded by the Bassat brothers out of Melbourne, the CEO is still Andrew Bassat. Buy, hold, or sell?

Seek (ASX:SEK) 

Bruce Williams (SELL): It's a sell for us. Basically, we think from a valuation perspective, it's too high, especially considering they sold a large portion of their Zhaopin investment.

Bella Kidman: Catherine, Seek just keeps running. It's up 50% in the last 12 months, buy, hold, or sell?

Catherine Allfrey (SELL): It's a sell for us as well. I think, actually, it's a cyclical and you've got to actually look at the business in 2022 and back out the investments part of the business, which is marked to market and you're left with a business, it's about $10 billion in market cap. They've got loss-making operations in South America and Asia is not performing particularly well. And it's trading, as Bruce was saying, on about 45 times free cash flow, which is just way too expensive.

Goodman Group (ASX:GMG)

Bella Kidman: Well, nothing like naming a company after yourself. Next up we got Goodman Group founded by Gregory Goodman, buy, hold, or sell?

Catherine Allfrey (HOLD): Look, it's a hold. I would actually put Goodman's in one of those categories - if there's a market sell-off and there's a top-five Australian stocks you want to buy and own for the long-term Goodman's is definitely there. It's one of those companies that is leveraged to industrial property, which continues to grow thanks to Amazon and our love of e-commerce and online shopping. And they're the big beneficiary of those industrial sheds and Goodman has done a completely successful job over many, many years. But for me, it's a hold.

Bella Kidman: Goodman Group is up about 40% in the last 12 months, smashing their pre-COVID highs, buy, hold, or sell?

Bruce Williams (HOLD): It's a hold for us as well. A lot of the same reasons for Catherine, but I'd throw in there also, industrial property is generally easily replaceable. You can put it up fairly quickly. Very low cap rates for that, I do struggle with. That said, the tailwinds remain in place. But on valuation grounds, it's a hold.

Flight Centre (ASX:FLT)

Bella Kidman: Next up, we've got Flight Centre founded and run by Graham Turner. Still clearly experiencing a bit of the wrath from COVID-19. Buy, hold, or sell?

Bruce Williams (BUY): It's a buy for us, for the patient investor I'd probably suggest. When the economy gets going again post-COVID, people can travel, we think it'll recover well. We also think a lot of its competitors won't be in the same shape they were prior to. We have a lot of reasons to like it, but it'll still suffer the ups and downs until COVID-19 passes fully.

Bella Kidman: It's definitely going up and down, that much is certain. Its stores are still shut. Buy, hold, or sell on Flight Centre?

Catherine Allfrey (HOLD): Look, it's a hold for us. I can see Bruce's points and they're positive, and you'll get some positive news flow coming through, but at the same time, these businesses are being overvalued versus what they're transacting for offshore at a six or seven times multiple. So for us, we look at Flight Centre and we just think long-term, no.

Mineral Resources (ASX:MIN)

Bella Kidman: Next up, we've got Mineral Resources really capitalising on that commodities boom. Buy, hold, or sell?

Catherine Allfrey (HOLD): I'm going to be boring again and say it's a hold. It's one of those stocks that has a really important catalyst coming up in the next couple of weeks and that is the fact that currently, their iron ore operations is only 17 million. It looks like the WA government could grant them a licence to increase the port capacity in Port Hedland, in which case, they will be able to grow their iron ore book from 17 million times up towards 100 million with the whole West Pilbara opening up. So it's a really important catalyst with this company in the next few weeks.

Bella Kidman: What a stunning performance mineral resources had over the last 12 months, up around 130%. Nice little dividend yield. Buy, hold, or sell?

Bruce Williams (HOLD): It's a hold for us. Really, I think it's based on the iron ore price being unsustainable at its current levels. It's had supply constraints, excess demand for the shorter term. We don't see iron ore staying where it's at, so on that, we wouldn't buy.

WiseTech Global (ASX:WTC)

Bella Kidman: Our final stock is WiseTech, obviously one of the WAAAX stocks. Buy, hold, or sell?

Bruce Williams (BUY): It's a buy for us. It's creating a platform business in a really complicated area. When you look at retailers and they're just in time warehousing and the like, they do need supply chains to operate efficiently. It's reinvesting a lot into its product. It's a very good quality business. It's much like if you look at a Domain or a Seek; creating a platform business in an area that has real benefit to the end-user so we like it a lot

Bella Kidman: Catherine, you'll have to excuse the pun, but the WiseTech share price has really WAAAX-ed and waned over the last 12 months, buy, hold, or sell?

Catherine Allfrey (HOLD): It's a hold from us as well. Look, the CEO keeps selling stock. The founder keeps selling stock, which is never a great sign. I think he's down to about 40% now. But they've actually proven that they've got organic growth and the market had big questions over the last couple of years over their organic growth strategy. They've proven through COVID-19 with CargoWise One that they can continue to grow. So the valuation offset though means it's more of a hold for us.

Bella Kidman: The experts are right, good management equals a good company, but it turns out the founders may not be so wise after all. If you've enjoyed this episode of Buy, Hold, Sell, make sure you subscribe to Livewire's YouTube channel for more.

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