The last 12 months have been eventful. Amidst the uncertainty caused by Greece, China, the US Federal Reserve’s interest rate decision and ongoing global growth concerns, investors may be wondering – ‘Where are the opportunities for growth going to come from?’
The Australian small companies sector is ull of ‘hidden gems’ ready to be discovered. It’s not always about unearthing the next innovative tech start-up or big idea that’s going to change the world. In fact, there are many examples of good quality companies already providing excellent services to Australians.
Take the aged care sector, an area which has been a key focus of the Colonial First State Small Companies, Core team. 14% of the Australian population is currently retired and that number is growing rapidly. Increasing life expectancy means the number of elderly people are rising too.
This is creating strong growth for the companies that provide services to our aging population such as nursing homes and developers of retirement communities, for example.
As with any investment, it is critical for the team to recognise the difference between strong revenue opportunities and the likelihood of value creation for shareholders – they aren’t always the same thing. A company with good revenue growth generally prompts the team to have a close look at the investment opportunity.
Before investing, the team need to be comfortable that the company has sustainable competitive advantages, strong free cash flow and a management team that they feel confident in backing. They must also consider the risks involved – in the aged care sector, regulatory risk is an important consideration.
It’s not just the aged care providers who stand to benefit from the ageing population. Companies building retirement villages, for example, offer similar growth to aged care providers, but carry less regulatory risk in the team’s view.
And then there are the wealth managers and companies offering Self-Managed Super Fund services to consider – several companies operating in this space offer good growth, annuity style revenue streams, strong margins and operating leverage as they grow.
Companies with these characteristics are the ones the team want to be investing in. The same rules of investing apply across all industry sectors, whether it’s the most exciting new technology or something as conventional as the aged care sector.
For the Colonial First State Small Companies, Core team, it doesn’t matter where the good ideas come from, as long as they deliver solid returns for investors over the long term.
For more information, please visit: www.colonialfirststate.com.au/specialist
Adviser use only. This document has been prepared by Colonial First State Investments Limited ABN 98 002 348 352, AFS Licence 232468 (Colonial First State) based on its understanding of current regulatory requirements and laws as at 23 March 2016. While all care has been taken in the preparation of this document (using sources believed to be reliable and accurate), to the maximum extent permitted by law, no person including Colonial First State or any member of the Commonwealth Bank group of companies, accepts responsibility for any loss suffered by any person arising from reliance on this information. Colonial First State is the issuer of the FirstChoice range of super and pension products from the Colonial First State FirstChoice Superannuation Trust ABN 26 458 298 557. Colonial First State also issues other investment products made available under FirstChoice Investments and FirstChoice Wholesale Investments, other than FirstRate Saver, FirstRate Term Deposits and FirstRate Investment Deposits which are products of the Commonwealth Bank of Australia ABN 48 123 123 124, AFS Licence 234945 (the Bank). Colonial First State is a wholly owned subsidiary of the Bank. The Bank and its subsidiaries do not guarantee the performance of FirstChoice products or the repayment of capital from any investments. This document provides information for the adviser only and is not to be handed on to any investor. It does not take into account any person’s individual objectives, financial situation or needs. You should read the relevant Product Disclosure Statement (PDS) before making any recommendations to a client. Clients should read the PDS before making an investment decision and consider talking to a financial adviser. PDSs can be obtained from colonialfirststate.com.au or by calling us on 13 18 36.
