This article was originally published on LivewireMarkets.com on November 1st, 2023

Investing in what you know can pay off handsomely.

Whether you work in a certain industry and have the inside running, love a brand and what it stands for, or regularly use particular products, such in-depth and often intimate knowledge can give you insights that more casual observers simply don’t have.

It’s a philosophy championed by many famous investors and last week I brought you the first instalment of a two-part series, in which we reached out to fund managers and asked them for the thesis on a stock that they both hold in their portfolios and also have some affinity with.

The global stock edition can be found by clicking the link below:

How your expertise can drive investment gains (and 2 stock ideas)

Today we bring you the local edition, focused on ASX-listed opportunities. Thanks to Hugh Giddy from IML and Bruce Williams from Elston for taking part.

Bruce Williams – Elston Asset Management – carsales.com Ltd (ASX: CAR)

carsales.com (CAR) five-year chart. Source: Market Index

 

We hold it in our large-cap portfolio. I am also personally selling a car at the moment.

It is an incredibly easy service to use in that when you place an ad, it provides you with a lot of tips in order to increase the probability of a sale. This includes price guides, how many photos you should include and of what, input to your “pitch”, and also comparable cars already listed.

Once your add is up and running you then receive weekly statistics such as how many appearances, views, and saved searches.

You soon get a good understanding as to the likelihood of selling your car.

If you do not have the time or inclination to sell the car privately, you can also make use of the relatively new Instant Offer product. This is where you put in details of your car and Carsales provides you with a guaranteed price from a local dealer. As long as you haven’t embellished the quality of your vehicle, the transaction can be carried out very quickly at prices that are probably better than trading in.

More important to Carsales are the services that they provide to dealers – it is absolutely essential, and Carsales dominates the market. Obviously, you have the classifieds business but Carsales also provides SaaS, valuations & appraisals, research & reporting, website development & hosting, and even photography. Dealer feedback we have received also highlights innovation as a real strong suit – whether it be existing products or developing new ones.

It is worth noting that they also have operations in South Korea, Brazil, Chile, and the United States, where we think the Trader Interactive business will be a real driver of growth in the future.

As far as knowing their customer and looking after them, they don’t get much better than Carsales.

It’s hard to find a business where this is such a big part of the culture, but easy to see why they will continue to do well into the future – hence why we own them.

Hugh Giddy – IML – Metcash (ASX: MTS)

Good for customers, good for shareholders: Metcash

Metcash (MTS) five-year chart. Source: Market Index

 

I’ve followed Metcash for decades. The company, then “Davids”, was the main wholesaler to independent food and liquor stores in Australia. Numerous stores used the wholesale services under different banners, with little uniformity or consistency in stores.

Renamed Metcash, new management consolidated retail brands. The main IGA grocery brand was tiered to reflect supermarkets, smaller stores and the convenience Express stores. Retailer standards were implemented, allowing for more supplier support, promotional calendars, effective catalogues, and more appealing stores. Data collection now facilitates customer insights. Refurbishing stores leads to a significant sales uplift. As customers visited their local IGA during COVID after an absence, they were impressed not only by better stores, they also noticed the wide range and price matching on key items.

Personally, I enjoy the experience, the better range and convenience of the IGA store.

Liquor followed a similar playbook with the consolidation of brands into Cellarbrations, the Bottle-O and IGA liquor. The liquor division is consistently profitable and has shown steady growth over the past decade. It’s second to Endeavour (Dan Murphys and BWS).

More recently, Metcash set up a hardware pillar, now second to Bunnings, consisting of Mitre 10, Home Hardware, and Total Tools. Hardware has grown rapidly under their leadership to be the largest division. I shop at Mitre 10 often as I tend to get better service than Bunnings.

The quality of the business has been transformed.

The customer experience is good, as are the business economics.

Yet the market still treats it as lacking structural growth. With a 12x PE and 6% yield, the discount to peers such as Woolworths, Bunnings and Endeavour is much larger than justified by the buying power differences of being the largest player.

If you would like more information, please call 1300 ELSTON or contact us.