When it comes to identifying companies with appealing business models, two attributes which are often identified include repeat customers and brand recognition.
The beauty of repeat customers is that it provides a more consistent and reliable revenue stream as well as a lower marketing spend. In contrast, a company that has few repeat customers is less likely to have a predicable outlook for future revenues and is also more likely to incur higher costs to win new customers on a regular basis.
Playing to the same tune is the concept of brand recognition and the potential for a strong brand to achieve brand loyalty. This attribute is also key to capturing repeat purchases, at a lower ongoing cost.
World famous, billionaire investor Warren Buffett was an early discoverer of these concepts and his portfolio of assets which he has accumulated for Berkshire Hathaway reflect this. Amongst the companies which fit these themes include low cost insurer GEICO, branded beverage owner The Coca-Cola Company and financial service provider American Express.
Over the years, Buffett has also acquired shares in many fast moving consumer good (FMCG) businesses. The Coca-Cola Company is perhaps the most successful example of this but other high profile companies have included Gillette and Wrigleys.
The ASX also has its share of high quality, FMCG businesses. Here are two companies which can boast of major market share in their respective product categories that could make worthy additions to a long-term portfolio.
Ansell Limited (ASX: ANN) – the group has global brand recognition in the industrial and medical glove and sexual wellness categories. Ansell's shares are trading on a forecast price-to-earnings (PE) multiple of 13 times and with a forecast dividend yield of 2.7% which is arguably attractive given the global growth opportunities.
Asaleo Care Ltd (ASX: AHY) – owning brands including Sorbent, Handee and Libra, Asaleo is a leading manufacturer of hygiene products. With the stock trading on a forecast PE multiple of just 12.6 times and with a forecast dividend yield of 6% the stock looks attractively priced.
