What’s your take on Corporate Travel’s performance as recession fears continue to loom over the sector?
Our investment thesis is that Corporate Travel has a significant runway available to them to consolidate what is an extremely fragmented SME (small-to-medium enterprise) market, especially in the United States. We believe that their ability to continue to gain market share will outweigh the headwinds they face as the corporate travel sector comes under pressure in the short run. The company is now the fifth largest global corporate travel player with about 1 per cent market share.
As far as we can tell, there is no issue with demand for their services despite leisure travel rebounding quicker than corporate travel. Airline capacity will be constrained for some time, at least until the calendar year-end and into early next year, but travel bottlenecks are easing.
Competitively the company is doing very well. All reports are that their sales pipeline is full, and they recently won a number of high-profile government and corporate contracts in the UK and US.
IDP Education is in your top holdings. Broker UBS estimated the company stood to lose 30 per cent in market share after Canada opened up its study direct system (SDS) visas to competitors. What is your view on IDP’s outlook?
IDP Education has a really attractive technology-enabled value proposition that has allowed it to take significant market share in a structurally growing acyclical market. While being the market leader, we estimate the student placement business still has less than 7 per cent share of its addressable market.
Yes, the change to the Canadian SDS visa stream has opened its [International English Language Testing System] business to more competition, and it is uncertain how much market share IELTS could lose over the next few years. However, IELTS is a business with high barriers to entry that are not just regulatory in nature. There is also a large ecosystem of referral partners and test preparation providers surrounding the IELTS test that we think will ultimately limit the impact.
Do you think jewellery retailer Lovisa will survive a downturn considering higher rent and food prices are hurting young shoppers?
Yes, we do. Lovisa operates at a very low price point, with average transactions being less than $20. So we don’t believe that this will be as affected by a recessionary environment. As long as the company can manage their inventory to appropriately match demand, they should be ok.
People had similar concerns during COVID-19 when no one was physically going into stores at all. However, Lovisa managed to come through it well, and we believe that they will manage the current environment in a similar fashion. They have the potential to emerge as a stronger business as others falter.
During COVID-19, Lovisa acquired 114 stores from [German jewellery wholesaler] Beeline for 60 euros ($98.52). This gave them an expanded footprint in a number of additional geographies extremely quickly.
While we do expect this year will prove challenging for same-store sales growth (due to the high comparable store sales last year and a challenged jewellery segment), our investment thesis is predicated primarily on a store rollout strategy. Typically, same-store sales numbers are used to assess the health of the underlying business. However, this is the year of normalisation, and we believe the company has enough scale and knows what levers they need to pull, should they have to weather any recessionary challenges.
Which stock in the fund is most undervalued by the market?
[Hedge fund] GQG Partners stands out as the most undervalued position in our portfolio. The market is only valuing it at a price-earnings ratio of 11 times, and a dividend yield of 9 per cent – this suggests its growth opportunity is unappreciated by the market.
GQG has a substantial capacity opportunity to fill, which it has so far done at an unprecedented rate of success due to a well-positioned product supported by an excellent performance track record. Its business momentum continues to meet our expectations, with $5.4 billion net inflows in the first four months of 2023.
If the business manages to raise the level of funds under management we expect the current valuation really underestimates the earnings potential. The key risk we’re watching is fund performance and the key man risk it carries given our view that franchise value is tied to Rajiv Jain’s reputation.
Favourite local bar or restaurant? What’s your go-to order?
I went to this awesome little bar the other week called Cantina OK! in Council Place in Sydney’s CBD. They only serve tequila and mezcal, so if that’s your poison, check it out.
What are your hobbies?
I spend most of my spare time around the beach, in the water surfing, and in a yoga studio. Currently, I’m learning Spanish.