Today I’ll be sharing three small Australian companies that I would buy today.
All three sit on my watchlist and have a market capitalisation of under $1 billion. Let’s dive in!
1. Aussie Broadband Ltd (ASX: ABB)
Aussie Broadband is a retail service provider of internet, mobile and VOIP plans based in Morwell, Victoria. The company’s bread and butter is reselling NBN subscription plans to households.
Retail telecommunications is a low margin business crowded with many competitors. Aussie Broadband differentiates itself from peers by lasering in on the customer experience through its locally based call centre and proprietary billing software.
As a result, the company has the most satisfied broadband customers in Australia and industry-leading churn rates.
Currently, the business only has a 4% market share, however is taking 16% of all new NBN connections.
If the business can retain its leading service levels, I think it has a long runway of growth ahead.
For more Aussie Broadband check out my bull case here.
2. EROAD Ltd (ASX: ERD)
EROAD is a New Zealand based telematics company. Essentially the business provides hardware and software solutions to ensure regulatory compliance, improve driver safety and reduce costs for vehicle fleets.
The company is the market leader in New Zealand and is looking to take its success into new markets in Australia and the US.
Current CEO Steven Newman is aligned with shareholders interests. He owns 13,067,936 shares equal to about 16% of the company.
Additionally, EROAD recently made a strategic acquisition of Coretex, which will accelerate growth in its new markets.
Check out the other reasons why I like EROAD in more detail here.
3. Australian Ethical Investment Limited (ASX: AEF)
Australian Ethical is a fund manager offering ethical superannuation and managed fund products.
Whether or not ethical investing is your cup of tea, there is no denying the industry movement towards placing greater importance on ethical, social and governance (ESG) factors.
The company currently has $6.07 billion in funds under management (FUM). This is a 50% increase over the past year.
Profit growth in the past has been subdued, largely as a result of the company lowering its management fees on its products while FUM increased.
As fee-cutting moderates, the inherent operating leverage should kick in and profits begin to flow.
Australian Ethical also has extremely favourable customer demographics. 72% of members are less than 44 years of age or younger compared to the industry of 40%.
As customers age, wages will likely increase and compulsory superannuation contributions rise.
Catch the full write up of Australian Ethical here.
Final thoughts
I currently own EROAD shares and of the three companies, this would be the one I buy first.
Next in line would be Aussie Broadband and then Australian Ethical last due to relatively high valuation.
All three could be long-term winners and I’m looking to actively add each of them.
