Strong company performances across Mirrabooka’s portfolio have marked the FY24 reporting season. Portfolio Manager Kieran Kennedy
shares his views on the reporting season, highlighting key themes and standout performances.
Mirrabooka has delivered impressive returns and consistent dividend payouts over our 25 years of investing, focusing on high-quality small and mid-cap companies; we've consistently outperformed the S&P ASX Mid Cap 50 and Small Ordinaries Accumulation benchmarks. The FY24 company reporting season reiterated our ability to select high quality companies held for the long term.
Overall, results from the reporting season were broadly as expected. There were, however, a number of noteworthy disappointing updates released across a range of small ordinaries stocks. Pleasingly, Mirrabooka largely avoided these companies, with our largest holdings providing encouraging updates on their business strategies and growth prospects.
Amongst our largest holdings, Macquarie Technology Group (MAQ), ARB (ARB), and ResMed (RMD) provided good examples of this strategic progress.
Our conviction in MAQ hasn’t altered despite the recent retracement in its share price. MAQ is a data centre, cloud and telecommunications business. As a founder-led business, MAQ has grown strategically over 30 years, funding their growth through careful reinvestment. MAQ recently received development approval to extend their data centre capacity in Macquarie Park, which will be amongst the first operational Australian data centres built with liquid cooling to accommodate Artificial Intelligence (AI) focused workloads. This approval was initially delayed by the local council, a delay that has seen AI workloads add significant demand to a market with supply that was already struggling to keep up.
ARB, a leading provider of four-wheel drive accessories, delivered results slightly stronger than expected. We are encouraged by recent strategic progress made in the US market. A strategic partnership with Toyota that sees branded ARB accessories produced and sold pre-assembled through the Toyota supply chain and the potential to partly own the largest after market retail store network are key milestones that could see a step change in sales.
Resmed has seen a recent share price recovery following earlier speculation that the rapid rise of weight-loss drugs would reduce demand for their sleep apnea treatment. The intense discussion of this threat was, in our view, overlooking the fact that ResMed’s market position has never been stronger. The business is well-placed to benefit from increasing awareness and diagnosis of sleep apnoea, and the significant portion of undiagnosed cases will continue to drive growth.
These company results reinforce our confidence in our long-term investment strategy and underscore why we avoid chasing short-term market gains. This disciplined approach helps us steer clear of companies that might seem undervalued in the short term but lack sustainable competitive advantages. By concentrating on businesses with robust models, we emphasize long-term value over speculative gains.
Patience required
Across our portfolio there will inevitably be a cohort of companies that are navigating challenging trading conditions. In these situations we balance a patient long term approach, with a degree of scrutiny to ensure we retain conviction in the Company’s strategy to achieve improved future results.
We've maintained our investment in PEXA Group despite the company's UK expansion progressing more slowly than expected. PEXA's Australian digital conveyancing operations have been robust and are an asset of high strategic value. We are monitoring the upcoming CEO transition to determine the growth potential for the Company.
Corporate Travel Management, a company that successfully navigated the COVID pandemic has has not grown as well as expected in the recovery period since. We are monitoring their ability to again capture new customer growth at a faster rate than competitors, particularly in larger offshore markets.
Similarly, Seek has faced challenges due to changing labour market cycles, as fewer people are changing jobs and the market becomes tighter. Despite efforts to innovate, Seek has not shown substantial earnings growth over the past decade. This cyclical situation places additional pressure on the company to perform well in the next upcycle to prove its value. We continue to hold Seek, recognising the need for scrutiny over the next 12 months to ensure it can capitalise on future opportunities.
Navigating market risks and economic pressures
We maintain a balance between managing risk and capturing growth. Given the current high valuations in certain sectors, we have strategically reduced exposure in some stocks and redeployed capital into opportunities offering better relative value.
Looking ahead, we continue to be on the lookout for compelling new emerging companies, which are unlikely to come from the IPO market in the short term as this market remains dormant. We remain confident in the quality and future prospects of our Investment Portfolio but continue to actively manage its composition particularly looking for any risks emerging from stretched valuations and opportunities arising from share price selloffs.