Australian Foundation Investment Co.Ltd. (ASX: AFI) has revealed three ASX investment ideas.
Australian Foundation Investment Company (AFIC) is Australia’s largest listed investment company (LIC). It was established in 1928 and invests in Australian shares for its shareholders. AFIC aims to pay a growing stream of fully franked dividends and enhancement of capital invested over the medium to long term.
What Are AFIC’s Three Investment Ideas?
AFIC is currently holding its annual general meeting (AGM) and is giving shareholders an update about the market and its thoughts.
The company explained that its recent underperformance over the past year compared to the index was due to an under exposure to real estate investment trusts (REITs) which AFIC feels are risky because they’re priced well above their asset backing, it had no exposure to the gold sector (not typical AFIC shares) and the LIC has been underweight the tech sector because of high valuations.
Some of the things that AFIC looks for in the portfolio are: a sustainable competitive advantage, strong management team & board, recurring & predictable earnings are preferred, financial strength with good cash flow and a good balance sheet, long term growth potential and AFIC buys when it can see long term value.
AFIC has identified some ‘nursery’ holdings which it thinks are good smaller businesses:
Qube Holdings Ltd (ASX: QUB)
Qube is a diversified logistics and infrastructure company founded in 2010 following the acquisition of Kaplan Equity by KFM Diversified Infrastructure and Logistics Fund, which rebranded as Qube Logistics. Qube is comprised of five business units including Ports, Bulk, Logistics, Infrastructure and Property, and Strategic Assets.
AFIC said that it likes Qube because it has a dominant position in logistics, Moorebank is a significant opportunity and it has a backable team of people with owner driven characteristics.
Xero Limited (ASX: XRO)
Founded in New Zealand in 2006, Xero has become the dominating player in the business and accounting software market in Australia, New Zealand and the UK. Employing more than 2,300 people, Xero helps more than 1.8 million subscribers manage their accounting and tax obligations.
AFIC likes Xero because it has a leading position in software accounting with its cloud based technology. It’s dominant in Australia & New Zealand whilst growing in the US and UK. Despite a decade of growth it’s still investing heavily in the product.
Nextdc Ltd (ASX: NXT)
Nextdc is a data centre operator which has several locations throughout Australia. Founded by Bevan Slattery in 2010 the company has come along quickly and was named Deloitte as the fastest growing technology company in Australia in 2015.
AFIC likes Nextdc because it has a growing leadership position in the strongly growing data market. It should have a good return on invested capital (ROIC).
Each of these growth shares are good picks by AFIC, I wouldn’t be surprised to see each of them beat the index over the next three to five years. Xero would probably be my pick because of its global growth potential.
But I wouldn’t say any of them are cheap at the moment, I think the growth shares in the free report below could be better value ideas.
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Disclaimer: Any information contained in this article is limited to general financial/investment advice only. The information has not taken into account your specific needs, goals or objectives, so please consider consulting a licenced and trusted adviser before acting on the information. Please read The Rask Group’s Financial Services Guide (FSG) for more information. This article is authorised by Owen Raszkiewicz of The Rask Group, which is a corporate authorised representative No. 1264179 of Strawman Pty Ltd (ACN: 610 908 211) (AFSL: 501 223).
At the time of publishing, Jaz does not have a financial interest in any of the companies mentioned.