Here’s why I’m watching Technology One Ltd (ASX: TNE) shares, Flight Centre Travel Group Ltd (ASX: FLT) shares and Mineral Resources Ltd (ASX: MIN) shares.
With a large chunk of shares listed on the ASX never turning a profit, unfortunately, some companies are run to benefit executives, at the expense of shareholders. Too often executive decisions are influenced by short-term remuneration incentives rather than focusing on the long-term viability of the business.
For anyone who has read a remuneration report, you will understand the difficulties to gauge whether managements’ interests are aligned with that of shareholders. One simple approach is to look for founder-led companies with large insider ownership.
There’s a growing amount of research to suggest that founder-led companies on average deliver higher returns to shareholders. In the book, The Founders Mentality, Zook and Allen found in their research of US-listed companies, that those with founders still involved, outperformed their peers by 3 times!
Founders who still own a significant position in business have a greater incentive to maximise long-term shareholder value. Not only is their own wealth at stake, but also an emotional commitment for their company to succeed.
Whilst it’s not a guaranteed strategy, here are 3 mid-caps which have been wealth making machines for the founders and long-term shareholders.
Technology One Limited (ASX: TNE)
Starting out from humble beginnings out of a demountable office in a suburban Brisbane factory carpark, founder Adrian Di Marco has led Technology One to become one of Australia’s largest enterprise software providers. The company has a strong presence in creating software for Government departments, Universities and health and community services. Customers are charged an initial license fee and then an ongoing annual fee, which creates a nice stream of re-occurring revenue.
Technology One is a high-quality business generating a return of around 28 cents for every $1 of equity. What’s more, the company can generate these returns with no debt.
Founder and Executive Chairman Adrian Di Marco is still heavily involved in the business and owns 8.6% of Technology One. Founding investor and director John Mactaggart remains a major shareholder with a 12.20% stake.
Flight Centre Travel Group (ASX: FLT)
Flight Centre is a well-recognised brand when it comes to the Australian travel industry. Brands like BYOjet, Student Flights, Topdeck and Travel Money Oz, to name a few, all fall under the Flight Centre Group. Flight Centre’s global businesses generate more than 50% of total transactions volume (TTV) off-shore.
Offsetting weaker results in its leisure travel businesses, the company has grown to become a substantial player in the corporate travel industry. Now around 37% of TTV, is attributed to corporate travel. For those keen to get direct exposure to this space, check out Corporate Travel Management Ltd (ASX: CTM) who also has a founder/CEO with plenty of skin in the game.
In the past, Flight Centre has been a heavily shorted stock, with many criticising the business model in the age of the internet. Management has continually disproved this thesis, at the expense of the short sellers.
Flight Centre is conservatively managed and is currently holding net cash of $358 million, a strong position to make opportune acquisitions and withstand economic shocks.
Flight Centre’s CEO Graham Turner co-founded the business in the early 80’s and still to this day has much of his wealth tied up in the company. Turner owns over 15 million shares which are currently worth over $690 million.
Mineral Resources Limited (ASX: MIN)
Mineral Resources, in my opinion, is Australia’s leading mining and mining services company. The company builds, owns and operates mineral crushing and processing plants. They have long-term contracts with the large low-cost producers, like Rio Tinto (ASX: RIO), providing a level of insulation from fluctuations in commodity prices.
Mineral Resources also provides complete services to mine owners from initial mine development, through to production and export, staying ahead of the competition by constantly innovating, finding efficiencies and lowering costs.
Leveraging off its expertise in mining services, Mineral Resources also owns and operates lithium and iron ore mines of its own. In an industry, which is fraught with poor capital allocation decisions, management has an exceptional track record of understanding commodity cycles and allocating capital accordingly.
Founder and Managing Director Chris Ellison owns 11.6% of the company, which is currently worth over $360 million.
Buy, Hold Or Sell
Over the long-term, I am confident these companies will provide solid returns to the patient investor. At current share prices, none of the companies are overly compelling buys, however, they’re sure worth a spot on your watch list.
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