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AFR: Q&A with Matthew Booker


This article was written by Alex Gluyas for the Australian Financial Review. Read the original article.

Are there any IPOs that you’re in, or like the look of?

Our key tenet is to purchase IPOs where management retains a significant holding, or as we say, skin in the game. Vendors tend to have incredible foresight when timing their selling – if they sell a good chunk of their holding, it undoubtedly is caveat emptor.

Many of the companies being IPO’d are in hot sectors where fundamentals have succumbed to greed and euphoria. We are cautious about pursuing these kinds of companies, particularly if they are burning cash and have valuations based on revenue multiples or other non-profit metrics. We believe in the long term this is a sure-fire way to lose money, as stockmarkets are invariably cyclical.

One IPO that we bought a couple of years ago that we really liked is Mader Group (MAD). MAD is a highly profitable and growing company that specialises in fixed plant equipment and heavy vehicle maintenance.

It ticks all our boxes, most importantly the founder, Luke Mader, owns 56 per cent of the business and remains heavily involved. It still only trades on about 10 times pre-tax earnings with healthy cashflows and a strong balance sheet.


Which stock in your fund are you most bullish on?

If we were to pick one position that will shine over the next few years it would be Michael Hill International. The company fell out of favour a couple of years ago and rightly so after reporting some terrible financial results. Under new management there has been a magnificent turnaround engineered with the company reporting record results in FY21, despite navigating significant disruption from the global pandemic.

However, the company is still trading at a massive discount to its peers. In fact, at current share price levels it remains 45 per cent lower than its all-time high which was set in 2016 when it earned half of what it does now. Its current cash balance of $NZ70 million ($67.3 million) is more than double what it had then.

Whilst the store footprint is mature in its key operating markets, we believe the company is well placed to expand its digital business which grew over 50 per cent last year and there remains plenty of upside in store operating metrics and its loyalty program which now has over 900,000 members.

This can drive further organic revenue growth, margin expansion and thereby profit expansion. With the company currently trading on only 4 times pre-tax earnings, we believe that multiple expansion alone could see it double from here and it would still be absolutely cheap.

Spheria’s Microcap Fund returned nearly 66 per cent in the year ended September 30. Which stocks drove that performance?

The largest contributors to performance were Ainsworth Gaming, Maxitrans (MXI, now called Maxiparts), NZME, Seven West Media (SWM) and Michael Hill. The share prices were all up between 125 per cent and 276 per cent over the year to September 30, illustrating how inefficient the market was a year ago. Incredibly, most of these companies are still only trading on mid-single digit pre-tax earnings multiples, and the balance sheets, except for SWM, are all net cash.

Notwithstanding an external shock of some sort, it is difficult to envisage these companies not re-rating to more appropriate levels which could see them comfortably double or triple from current levels.

Any larger cap stocks you like the look of?

One mid-cap company we have recently reacquired a position in after a significant sell-off is A2 Milk. It’s a business we are very familiar with as we first acquired a stake in it when it was relatively unknown and trading at about 60¢ in 2014.

Having not owned it for a few years, we now believe it is attractive on valuation grounds and believe the long-term fundamentals remain intact. We know the new CEO, David Bortolussi, well from his days at Pacific Brands where he turned around that business in a relatively short time frame and eventually sold it for a healthy premium to Hanes Brands.

We think he can do something similar with A2.

Which stocks do you think make an appealing takeover target?

As an investment banker was quoted recently in the newspaper, pretty much every listed company is a target for M&A at the moment. Capital is the cheapest it’s been from an equity and debt perspective and acquirers are confident and willing to deploy capital.

In the past six years, we have had 25 companies taken over across our portfolios.

We guess the next takeover targets that might be of interest in our portfolios could include the likes of Blackmores, Vista Group, HT&E, Orora, IRESS Limited and Ainsworth. Each of these companies has market positions that are difficult to replicate and therefore are strategic, in our opinion.

Any TV shows or podcasts you’ve enjoyed lately?

Like many people, my wife and I enjoyed watching Ted Lasso on Apple TV. It was nice to watch a warm and fuzzy show that brought laughter, kindness and joy to our household during some very challenging times. We can’t wait for the next season!

I don’t watch a lot of TV anymore as the kids have kidnapped the remote, however, I love sport, in particular the NRL and always get to watch my favourite team the Manly Sea Eagles play when I can’t get to the game.

Do you have a favourite restaurant in Sydney? What’s your go-to order?

We are spoilt for choice where we live in the Sydney’s East. My favourite restaurant would be Van Expresso Bar. The John Dory curry and seafood dumplings are to die for!

What are your hobbies outside of work?

The past few years I have taken up the Clovelly Run-Swim which is Monday, Wednesday, Friday mornings at 6.30am, all year round. We start on the Northern Promenade and run up the steps and around the beach to the south side where we swim across the mouth of the bay and back to the starting point.

It’s a minimum of five loops, some elite athletes do more, for ANZAC day we do 10 laps for the diggers. It’s rarely called off and a bunch of us die-hards love the big swells!

Winters are tough but there is no better feeling than completing five laps on a bitterly cold day when the water (whilst freezing) is warmer than the air temp. There is no better way to start your day! All you need is a pair of sneakers, togs and goggles. See you there.