Ask A Fund Manager
The Motley Fool chats with the best in the industry so that you can get an insight into how the professionals think. In this edition, Forager Funds Management portfolio manager Alex Shevelev picks the ASX stock that would allow him to put his feet up for years.
The ASX share for a comfortable night's sleep
The Motley Fool: If the market closed tomorrow for four years, which stock would you want to hold?
Alex Shevelev: Well, no surprise, RPMGlobal Holdings Ltd (ASX: RUL).
[Here are Shevelev's comments on RPM Global from earlier in the interview:]
The company's given guidance for the current financial year of profits tripling. And that's quite conservative guidance by a management team who we regard as top notch. And that guidance actually assumes that the new revenue additions, which are an important metric for RPM, will be below last year. But the business looks to be tracking better than that.
We, in fact, got an AGM update just this morning that confirms that the business is doing a good job continuing to sign on its subscription revenue. And all of that is trading at about 17 times earnings next year. That earnings stream is high quality and will continue to grow over time.
Now, it's been an interesting space, as well, for corporate attention. Two of their larger competitors have recently been taken out. Those two transactions imply for RPM… more than double the current share price. This is a business that can garner a lot of attention from potential bidders over time.
We've talked about very low churn revenue there. You've got to focus on operating leverage from here on in. Great management team, plenty of skin in the game and it may well be given all the corporate activity in the space that the business wouldn't be around in four years in any case.
MF: Fair enough. There's been a lot of private equity interest in especially tech companies this year.
AS: That's right.
MF: Are they bargain hunting? Is that what they're doing?
AS: Well, I think for a lot of private equity firms, they're sitting on quite a lot of capital and they're seeing some attractive bargains in this space from companies that actually have some pretty strong underpinnings, but that have been dramatically sold down by the listed markets.
Those companies have been spending a lot on research and development, sales and marketing to try to scale up. But there is a way to run those businesses more efficiently. A lot of those companies are doing that in the listed space already, but the private equity firms see the opportunity to purchase those businesses and do the same in the unlisted space.
