How Professionals Analyse Micro, Small & Mid Caps - with Jack Briggs, Ellerston Capital

In this episode, I chat with Jack Briggs, Portfolio Manager at Ellerston Capital, who oversees the Australian Micro Cap Fund, Emerging Leaders Fund, and Mid Cap Opportunities Fund.

Jack breaks down the micro, small and mid cap sectors, explains how professionals identify mispriced companies, and shares the deep dive research process behind Ellerston’s investment approach - from site visits and management meetings to understanding customer behaviour and competitive dynamics.

You’ll learn why these parts of the market sit between the big household name blue chips and the speculative end of the ASX, and why they can offer meaningful upside for patient investors willing to do the work.

We also explore current themes including electrification, data centres, and the emerging impact of AI on software businesses.

Topics Covered

• What defines a micro, small, and mid cap company

• Why these sectors sit between blue chips and speculative stocks

• Why small caps are often under researched

• How Ellerston identifies industry leaders and mispriced opportunities

• Deep dive research: management meetings, site visits, customer calls

• Electrification, data centres, and AI as emerging themes

• Active vs passive investing in today’s market

• Portfolio construction: why 25–40 stocks

• How to filter the investable universe

• Margin of safety in small cap valuation

• The biggest mistakes beginners make

• How to start analysing small cap companies

Companies Mentioned

• Tuas Group (TUA)

• Catapult (CAT)

• Generation Development Group (GDG)

TRANSCRIPT FOLLOWS AFTER THIS BRIEF MESSAGE

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EPISODE TRANSCRIPT

What is a small, mid and micro cap company and how can these sectors take their place in a portfolio? These sectors sit between the big household name blue chips and the smaller, more speculative end of the market. It's where you can find established, profitable businesses that are still early enough in their growth journey to offer meaningful upside. Today I'm speaking with Jack Briggs, a portfolio manager from Elliston Capital. Jack manages the Elliston Australian Microcap Fund, the Australian Emerging Leaders Fund and the My Mid Cap Opportunities Fund. Reviewing Australian companies the team believes are genuine industry leaders, identifying opportunities where market mispricing exists. Despite strong fundamentals, scalable business models and attractive growth prospects, Elliston's approach is deeply research driven. They focus on strong business franchises, attractive earnings profiles and companies trading at a discount to valuation. Hello, Jack, how are you going?

Jack Briggs: Morning Phil. Thanks for having me today.

Phil Muscatello: Thank you very much for coming on. So let's talk about little Jack Briggs. When did you first become interested in financial markets?

Jack Briggs: Well, I was at uni doing a commerce degree and I always thought finance was the part of business that interested me most, but I was a little bit serendipitously ended up doing some full time work placement at Colonial First State Global Asset Management as It was known 15 years ago now. First Sentia in that I was working in the Australian small caps team and it was kind of love at first sight for me with the markets I found the fast changing nature, the sort of the depth and challenge of solving the problem of understanding companies deeply and in some senses the arrogant pursuit of trying to predict the future and what's going to happen next for those companies is really exciting and I think I'm quite a competitive person. So I've always enjoyed the fact that there's a scoreboard on the market and you're comparing yourself versus what you've achieved in the past and what others are achieving. And so essentially I finished uni at night so that I could stay in the market and never leave. And here I am more than 10 years later, still happy. Yeah, very happy. That's right. Uh, it's often said by a lot of my peers that they wake up every day excited to go to work because there's something new happening every day and you get to look at the next Shiny thing and what you thought yesterday is challenged the next day and you've got to keep updating your views. And that's the fun part.

Phil Muscatello: I think it's a warning for beginners as well that it's really more difficult than what you think it's going to be. And the amount of depth of knowledge that's required to do this and the experience and also the, you know, the amount of focus that you guys are putting into things.

Jack Briggs: That's right. I think, you know, when I'm asked at barbecues for a share of a stock tip or I'm asked by a peer what it's like to actually to work in the industry, I think I always reflect on the fact that there is a lot of professionals out there doing this full time and it is a zero sum game trying to outperform an index. For you to outperform the index, somebody has to underperform. And so you are competing against people who potentially have more experience and more understanding. And that doesn't mean that there aren't advantages to being a self investor who's not a professional. Peter lynch has often talked about, he's written a couple of books that talk about that advantage in trying to deeply understand a company from the ground up. And being a consumer and being a participant in that industry can often give you insights that a professional who might be outside that world can't understand and therefore allows you to better value the future prospects of that company. And that's where I always lean to encourage people who have an interest or a passion and want to pursue this as a hobby or as a second career that you have to really be willing to do the work to understand the companies. And that's where you can really differentiate your opinions and make profitable investments.

Phil Muscatello: So Jack, tell us about these sectors that we're going to be talking about. The small mid M, micro cap sectors. Where do they actually sit in relation to the size of say the ASX uh 200, the ASX uh 300 and the overall size of their market capitalization, what the share market is valuing them at?

Jack Briggs: Yeah, so broadly the mid cap starting at the top. The mid cap part of the market is thought of as starting from the ASX 50 through to about the ASX 100. So there's about 50 stocks in that portion of the market. And then the small cap universe is thought of as the ASX100 through the ASX300. So about 200 stocks there's. And then the microcap index is pretty much everything outside the ASX 300. So there's a long, long tail of companies. And so broadly the size of those companies that fit into that is around $20 billion is the largest mid cap name all the way down to about $5 billion. At $5 billion is the start of small caps through to about $500 million and then $500 million down is the micro cap end of town. And then obviously you have your blue chip names right at the top, those top 50 companies, the household names, the big four banks, BHP, Rio Tinto,

00:05:00

Jack Briggs: Worths, etc.

Phil Muscatello: M. So the mid cap is what the everything below the ASX uh 100 and still within the ASX 300, is that correct?

Jack Briggs: The mid cap is everything outside the ASX50 and still in the ASX100 and the small caps is everything outside the ASX100 and still in the ASX300.

Phil Muscatello: Wow. Okay. Because I mean this is the kind of area where we're going to be moving outside of the big miners and the big supermarkets and the big banks, aren't we?

Jack Briggs: Absolutely. And so why we find that this area interesting and we think it should be part of investors portfolios is because those big companies, Telstras of the world, the insurance companies, the IAGs, the Suncorps, they're all large businesses in mature industries. And so what that means is that there's very little growth and they've had successive management teams over a long period of time optimizing their business models, optimizing the margin structures, optimizing the balance sheet and essentially to make profitable investments that outperform the index. The key ingredient that you need is for something to change. Because if somebody is trying to value that business, the thing that they get wrong is when something changes that they didn't expect. So for these big mature businesses where nothing is changing, they're not growing particularly quickly and there's no opportunity to optimize them. It's hard to make an excess return because where does something change that I can predict that the market may miss and therefore the stock price would outperform what the market's previous expectations were. Once you move into the smaller mid cap end of the market one, they're less researched. So that means that the understanding and information dissemination of those companies is lower. So there's more opportunity for me to do some hard work, to go and travel, to see the company, to see the value chain, the customers, try and be a customer myself, meet the suppliers and actually come up with a differentiated insight about something that's changing that business, that the market May have missed understood or not appreciated. You know, maybe it's a new management team can find a way to optimize the profit structure. Maybe it's a new product that they're launching into a, ah, adjacent immature industry that's high growth. These are the things that we look for every day when we're looking for

Phil Muscatello: new investment ideas and presumably to weed out the dogs as well.

Jack Briggs: That's right, that's right. I mean I think it's, there's many,

Phil Muscatello: sometimes people don't understand how many poorly run companies there are. Not that I want to name names here.

Jack Briggs: Yes, it would obviously be remiss of us not to talk about the fact that that's where the skill of investing in the small and mid cap space comes from. You need to be able to take that higher reward and acknowledge that there is higher risk in some of these investments. They uh, are younger, less mature companies with a wider range of outcomes for their future profitability. And so therefore that's where your deep fundamental research as I alluded to, we spend lots of time with management. We try to intimately understand what these businesses do and why, what problem are they solving for customers? Why is that the best solution to that customer's problem? Why is that the product they produce cheaper than their competitors? Why is product they produce superior? Uh, on a quality metric? You know, as I said, we try and use the product so we can actually, you know, taste test it if you like. And then we try and speak to the competitors to understand what their strategies are, how they see the world differently and whether they might actually be, you know, onto the winning ticket. And the company that we're potentially investing in is actually the future loser. Uh, these are the things that you know, we do as on the ground research. We try to travel. A third of our time is spent out of the office, often, you know, on planes and going and seeing the companies in their home m grounds going and see the manufacturing plants and understanding how does the business actually work. It's often quite eye opening when you, you know, you sit in the desk and look at the spreadsheet and think, okay, well they can produce, you know, 100 widgets in a, uh, given half year. And then you go to the plant and you say that the manufacturing, there's a lot less process automation and a lot more ad hoc things moving around and somebody's doing this and somebody doing that and you kind of understand the depth and complexity of actually manufacturing the product that in a spreadsheet looks very simple and that helps you understand the Risk and understand the operational complexity of the actual business and what you actually own as a shareholder. And there predict and price the future earnings potential more accurately.

Phil Muscatello: What types of industries and themes are offering compelling opportunities at the moment in your view.

Jack Briggs: So one area that we've believed very strongly at in Elliston and made very strong returns over the last three to four years is electrification. So this is purely within an Australian context. We're talking Australia is obviously undergoing the energy transition and now sort of well underway in that process. Big renewables systems are being built, batteries, solar, uh, wind largely that's far away from where the electricity actually needs to be used. And so that requires both the building of those systems but also the transmission lines back to the grid and to metro areas where there's population density. We've made a number of successful investments in that area genus plus being a good example of a business that's involved in actually stringing the transmission lines back to the grid. And they're one of only a few players that's been able to do that at scale. They've executed phenomenally over time, both managing the

00:10:00

Jack Briggs: the risks of these large fixed price contracts, which is obviously where a lot of contractors go wrong, that they misprice what it takes to actually fulfill them and then they miss on either time or cost to complete those jobs. They've shown a pretty flawless record in understanding what those jobs involve and bidding at the right prices. And additionally they've also been able to scale their business materially over the last few years and manage. The other challenge most contractors have is finding skilled labor, actually finding the electricians that are capable of actually executing those tasks and being able to do that at much larger volumes over time. We've also pursued that theme through the data centers. So a lot of where this energy is going and is to the computing power that we're building for both cloud and AI applications. So we've invested in businesses like Southern Cross Electrical and SKS more on the micro cap now becoming small caps. They've grown so much where they have employ skilled electricians to actually do a lot of the data center electrical work to get those installations live. And then I think another emerging area that where we're deeply researching, it's probably very topical. I'm not sure where we're going to land on this, but I think it's important for listeners to think about and uh, it's really where we are and today it's a fascinating world. You know, large chunks of the technology industry have been heavily impacted by AI and at this Point, it's very much wait and see. None of the profitability of these businesses has changed at all. None of the products in market for these businesses have changed at all. None of their competitors products have changed. But the potential risks around AI changing the way that software is used both by businesses and consumers is being heavily thought about by investors. And that's something that we're doing a lot of work on now, trying to pick out which businesses are relatively well protected and will benefit from incorporating AI into their own products and their own cost structures and which businesses will end up being roadkill to the next wave of technology disruption as AI proliferates more broadly through the economy. So that's just another theme that we think will be an enduring winner or loser for investors over the next few years.

Phil Muscatello: Track your investments like a pro. Sharesight is Investopedia's number one portfolio tracker for DIY investors. Simplifying your finances. Get four months free on an annual premium plan at sharesite.com sharesforbeginners yes, there's been a lot of talk, hasn't there been about SaaS companies being adversely impacted by this? But you know, there's some good companies and there's some bad companies and there are moats, aren't there? But anyway, we can talk about that further when we're talking about individual companies, I presume.

Jack Briggs: Great. Uh, yep, absolutely.

Phil Muscatello: Okay. So what Elliston Capital is undertaking is what's known as active management. Uh, and obviously there's a lot of activity involved. You know, getting on flights, you're getting into spreadsheets in managers offices and so forth. There's a lot of work that's being done. But I'm asking this question in the context of the rise of passive index funds. What role is there for active management these days?

Jack Briggs: We believe active management has its place in the future sustainably. And so I think particularly in the parts of the market that we're talking about in the small mid cap part where there is, as we've touched on before, lower research and the opportunity to come up with a uh, differentiated view versus what the market's consensus opinion of that stock is and what's priced into that stock's current trading price, we think that the way that you do, we think that that's sustainable because of behavioral and technical reasons why stock prices are dislocated. That will continue to be the fact. Time in a memorial. So things like index inclusions, which we see stock prices move wildly on the chance of being included or excluded, these are not fundamental drivers of the Business valuation. In the fullness of time those changes will wash out. We often see things in this end of the market where a certain manager has lost a large mandate from a super fund maybe and their stocks come under selling pressure for a short period of time and there's opportunities where that liquidity dislocates share prices. That's more on the technical side. On the behavioral side, we think humans are humans and will continue to be humans. And what that means is that you'll see fear and greed go too far in either direction as we've seen for the last hundred years in the stock market. And there's opportunities for investors who can employ a sound and robust battle tested process to exploit those. And so I uh, think that's where we'd get to as to is the process that an investor is employing appropriate to actually achieve excess returns? So at Ellison Capital we've touched on, we have a fundamental approach which means we're trying to understand these companies business models and we're trying to understand what's the two or three or four key things that will drive their future share price. We're trying to do work that targets understanding those as deeply as possible and therefore forecasting where those numbers may land, usually on a two to three year view as the optimal sort of forecasting window that we have confidence that we can see that far in the future. And then we're turning that into a range of outcomes where we think Company x could earn $100 million or $80 million somewhere in that range. And we're trying to turn that into a valuation often using a discounted cash flow methodology. And so uh, that $80 might be worth $4 a share and the 100 might be worth

00:15:00

Jack Briggs: 5. And then what we're looking for is to be compensated on our capital. So at Elliston for our small cap product we're targeting a 15% per annum return over three years. And so we want that four or $5 to $4 if that's our base case, to give us a 15 DOL, 10% return. And then we want a risk reward ratio that compensates us on the upside. So we want to know that if we think that the share price could decline 20% if one of the key risks play out like a key customer leaves, the share price might be down 20% then we want to make sure that we can make three times that on the upside. So if things went really well and this company is able to win uh, a uh, second big customer instead of losing the first, could we make 60% on our return. So broadly putting all of that together, our process focuses on understanding the businesses, accurately predicting the future through our deep fundamental work, and then making sure that our capital is compensated for as a hurdle rate and then also as a risk reward metric. And by doing that, we think our funds have shown a track record of outperforming the index over five plus year time periods.

Phil Muscatello: So the funds that you work with, they typically have 25 to 40 stocks in their holdings. Is this a magic number that you've come upon or is it just what the filtering process has provided an outcome for?

Jack Briggs: The number of stocks in the portfolio is always under tension and does move around a little bit, a few in either direction depending on where we are in market cycles and where we are on the bottom up opportunity set. But broadly what you're trying to do is having a single stock means that your portfolio can move around quite wildly. So you need to add diversification to that. I think an absolute minimum level of diversification is often thought of as around 20 stocks, but that would still lead to reasonable swings on daily and weekly basis. And so our view is that you need a few more than that to minimize the short term volatility of the portfolio. But the tension is you're trying not to dilute your best ideas. There's been a number of empirical academic research conducted that show that fund managers best ideas usually do perform quite strongly. And it's the rest of the portfolio numbers through the middle and the bottom of the portfolio that tend to drag that back more towards index level performance in a lot of cases. And so you don't want to have too many stocks or you're just putting in stocks for the sake of it and your differentiated view and your belie that they're underpriced, uh, is going to be diminished versus your best ideas. So where we found through experience is somewhere in that 25 to 40 is about the right number. And generally you skew towards obviously the largest. You know, the best ideas have a larger weights in the portfolio. So Generally your top 20 stocks might be 65, 70% of the total portfolio value. And they're the ones that are really going to drive the returns. And then the smaller stocks are things that we like to call them prospect positions where in our process where we like what's happening at that business, we think things are moving in the right direction, but there's still either a little bit more work we need to do or something we need to see to get a little bit more conviction. Oftentimes it's that business has a single issue that's holding back. Quite a good idea. So maybe the balance sheet is a little bit stretched, but the rest of the business is going quite well. And if we see that balance sheet tension improve, we go much larger. Uh, and so we're just constantly trying to balance those tensions of best ideas versus adequate diversification. And as I said, that moves around the market cycle. When you see drawdowns like we've seen recently with Iran war, we often end up more concentrated and less stocks because we see more value in some names that have pulled back quite steeply with, you know, investor concern and risk off behavior. And that's kind of where the portfolio sits now versus two or three months ago.

Phil Muscatello: So I assume that there's quite a lot of robust discussions around the meeting table each day on this.

Jack Briggs: Absolutely, absolutely. And I think that's, you know, when I reflect on what the job involves, you know, half the job is doing the actual stock work and going out and trying to improve our views on stocks where we're trying to build conviction in our, uh, forecasting and responding to changes in price. Uh, have they hit our valuation? Has our thesis for that stock played out? Is it now no longer undervalued? And then also responding to news flow, contract wins, et cetera. How do we price that in? Do we already expect that? Is that incrementally new? Do we need to change our valuation? So there's the stock part of it, and then there's the portfolio part, which is trying to blend all those disparate stock ideas together into a cohesive whole that's going to benefit our investor base. And so trying to manage the diversification, trying to make sure that there's no, what we call factor risks, uh, emerging in the book. So a factor risk, for those who might be unfamiliar with the term, is maybe you've got three different businesses and three different stocks, but they all share a common key driver. So, you know, for instance, we own a couple of developers, property developers, businesses, and you know, therefore we, we need to think of the risk of house prices and residential house prices in Australia is affecting. Instead of affecting the 3% position we have, it's actually affecting the 6% position because we have two that are doing the same thing. So, uh, from a portfolio perspective, you're trying to manage things like that as well and make sure that even if you like both stocks to be 3%, maybe you should only have 5%

00:20:00

Jack Briggs: in them combined because they kind of trade on the same idea. And so that's the things that we consider on a daily basis.

Phil Muscatello: Let's get to specifics. Tell us the story of finding a company and including it in the fund's portfolio.

Jack Briggs: Yeah, so I think maybe we'll stick with the property developer theme while we're on it. A company that we've added in the last six months and it's topical, is Gem Life Community. So Gem Life was an IPO about midway through 2025 and essentially they own a large land bank in southeast Queensland predominantly. And the company has existed for a long period of time and already developed around 2,000 lots. It's a land lease business. So uh, essentially they own a master planned community for retirees over 55s. They build two, three bedroom accommodation on these master planned communities and then they sell the house to a retiree who's usually a downsizer. Then the retiree buys the house but doesn't buy the land and pays a uh, small rental stream for the land. This is obviously trying to unlock property demand. It's trying to give retirees an affordable option to release equity from their existing larger homes once their children have left, and also trying to provide them with a community where the shared facilities and people of similar age who have common interests, et cetera, to enjoy their retirement. And so the reason this came across our desk is that we were observing the really rapid price growth in both WA and Queensland in residential housing, which is up, uh, tens of percent literally in the last 12 months. Just really, really aggressive price growth. And we also had a view as a team that Australia is chronically under supplied housing and there's very little that's been done to change that. And that's an enduring multi year story that house price growth is going to be driven by supply demand dynamics, maybe more so than interest rate sensitivity. And so particularly in areas like Queensland, where there's large internal migration of people post Covid from the southern states up there, we're seeing house prices grow very aggressively. So the reason that gets to where we were trying to look for companies that might express that ability to invest in that value. Gem Life has a very, very large land bank. So what that means is they've already bought a lot of lots that are uh, just vacant land at the moment that they will develop in future. So they bought that land over the last few years at prices that reflect the last few years land prices, but they will sell it at uh, prices that are much higher than that now that the residential prices have moved. And so we think that business can one produce more units because the demand's There and two, sell them at better prices over the next two to three years and therefore the market will appreciate the development earnings cycle that that uh, business can produce at a larger level than is currently priced into the share price.

Phil Muscatello: So GenLife, what was the size of the company when it first came into your view and then invested in and what is it now?

Jack Briggs: So GenLife was about a billion and a half market cap when it listed on asx. So that went into our small uh, cap fund. We invested around the IPO price which is about that billion and a half of market capitalization, around $4.50. And today the shares are at about the same level. The market has been down quite a lot recently and it's held up well because the result in February they provided quite strong FY26 earnings guidance that there was increased market expectations. So you've had the market day rate, the multiple of the stock and the market more broad with the market more broadly, but earnings improve. One of the things that we focus on over a medium term is getting the earnings right. Getting the multiple right is very important, but multiples can move around in the short term quite dramatically. And focusing on getting business right and getting the earnings right is the key driver over a 2, 3 plus year period. So we expect that to shine through as they compound strong earnings growth in FY26 and FY27.

Phil Muscatello: And what were the risks that you identified with GEM Life?

Jack Briggs: That's a uh, great question. And I think that's the one thing that I impress on all investors that considering the downside is often one of the most value improving ideas that you can do in your investment process. Oftentimes if you don't lose money, you'll end up up outperforming. I think there's been a few sort of empirical studies done that show that if you avoid the bottom 20% of the index and you invest in the other 80%, you'll actually outperform the index by 4 or 5% quite a lot, uh, depending on which time period you measure. So often getting things not wrong is better than getting things right. And so therefore we assess those things really carefully. So uh, in this specific example with GEM Life, one of the things we've been extremely focused on is their ability to actually construct the homes. So these homes are largely made to order. So you know, a customer will come in and go and look at the planned community and go and look at the lot that they may purchase, but it'll be a vacant piece of land. They'll then pay a, you uh, know a reasonable deposit and then the house will be built over the next 12 to 16 weeks. Sometimes there's a little bit of inventory ready, but largely they're building to order. And so what that means is that you need to be able to build to order, you need to be able to fulfill within a

00:25:00

Jack Briggs: reasonable time period both to make sure those sales convert and then to also let's make sure you actually can make the sale because you can say that it will be ready in a period that's not too long for the customer's needs and also to make sure you continue to deliver ah, the earnings that the market expects. And so we've dug quite deeply into their ability to find labor and their model. So uh, Gem Life's a little bit distinct from some other competitors in the industry in that they manage a lot of the construction themselves. So they have subcontractors but they are ah, the contractor, whereas others will outsource the entire development process. And so what that means is we feel like they're a little bit closer to the supply chain and they have a better touch, uh, and feel on whether there's any issues with lead times on materials or on labour. And therefore they're better able to manage that process and give us clarity that they can execute on the ambitions that they've set to market.

Phil Muscatello: Okay, well let's move on to the graduation process from micro to small to mid caps. And we're going to talk about a few companies here. Let's start with uh, Tours. The ASX code is tua and this is a telco, isn't it?

Jack Briggs: Yeah. So one of the things that we're very proud of, of our team at Ellison Capital and what we can bring that's a bit differentiated to some others in the market and where we can find a bit of competitive edge versus in picking these stocks is that we have the micro cap, the small cap and the mid cap fund within the team. And uh, so what that means is that we look at these stocks often when they're 100, 200, $300 million companies and we understand them deeply at that early stage and then three, four, five years later, uh, as they move into being small caps and mid caps, as they grow and they are successful, we have that long history with the management teams. We understand what they were thinking three years ago when they were half the size and when they had big dreams but still had to prove it. And we're able to use that knowledge to better inform our decision making today. And so the reason why I talk about that is that we invested in tours at uh, under a dollar would have been four or five years ago in the Micro cap fund that's now a $6 business. And a lot's changed in that time. But we have the core understanding of the Singaporean telecommunications market that helps us evaluate it today. So to us, when it was one of the more interesting stocks on the ASX back at under $1, it was spun out of TPG as essentially a set of network assets. So really just spectrum assets that have been purchased in Singapore but not really much to show for them. And it was very early stage. The thing that it kind of attracted us was they started to win customers way quicker than a business with, with not much to show should be winning customers. And it was obviously backed by uh, David Teo who's had a long history of success creating TBG Telecom into a uh, industry leader from next to nothing 10, 20 years ago. So the presence of David and his past success and what the business was doing really attracted us and made us look at that. And what we saw was that they'd constructed a much lower cost model than some of their competitors and that meant that they could offer better pricing and they could win the value based portion of the market in mobile. And since then they haven't looked back. They've consistently won market share at rates much higher than anybody would have expected in mobile. They've now broadened into broadband, which is a bit of a tougher market for them to crack because the value segments may be a little smaller and there's not as many users of broadband as mobile. But they are showing early, very positive signs. But the thing that kept us interested and the thing that now transitions into being a small mid cap and gives it uh, another leg of growth is they've recently announced the merger with M1 which is one of the three sort of dominant incumbent broad based telecommunications businesses in Singapore. And so M1 has a much broader suite of products across broadband and across enterprise and business as well as consumer. And 2us has announced the merger. It's yet to be approved by the Singaporean regulator. So there is some, a little bit of uncertainty on that happening, but we expect that in the next six weeks. And, and broadly what that means is that TUAS will become one of the top three players and they'll be able to use their management playbook that's been executed at TPG Telecom in Australia and it's been executed within the mobile market in Singapore to cut costs, drive value for the buyers of those services and to win market share based in a commodity service where they've got a price advantage. And so we expect them to continue to win market share on a much broader addressable market as a bigger business. And we're excited for that opportunity over the next few years. It continues to be a uh, core holding in the fund.

Phil Muscatello: What's the shape of the merger look like and how does it benefit shareholders so broadly?

Jack Briggs: M1 is one of the top three players and significantly larger than 2 US because it has both the mobile M M business that to us has at a larger scale as well as having broadband business as well as having actual fiber assets in the ground. So it has some infrastructure like earnings streams as well as business and enterprise earning streams that 2us doesn't have. So it's a significantly larger business. But it was also owned in a uh, former shareholder structure that wasn't conducive to its future growth and it had a heavy amount of debt and the capital intensity of a telecommunications business isn't optimally paired with long term large amounts of debt and particular owners. So under the transaction

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Jack Briggs: there's an opportunity to recapitalize the company and appropriate debt level merge it into us where there'll be considerable cost and infrastructure synergies because you don't need to pay for the same amount of mobile spectrum if you have it under the combined business. Whereas if you're running two separate networks and similar, you know there are network assets that tours is paying others for that now it can use M1's existing fiber et cetera. And then we think to us has demonstrated uh, a culture, a lean uh, operating culture that when applied to M1 could see significant overhead and people cost savings in things like administration, back office and in service departments and that could allow them to then reinvest in price. And as we know with telecommunications businesses, most mobile networks are pretty comparable to other mobile networks and most broadband products. Singapore has a similar sort of broadband setup as Australia with the NBN where you're actually using shared infrastructure. So the broadband product is the same regardless of who your provider is other than maybe service levels. So we think to us we'll pursue its existing strategy of cutting costs, reinvesting that cost saving and lower prices for consumers and then getting the volume benefit in market share and net net that will lead to better earnings outcomes than the current structure of the group.

Phil Muscatello: So let's move on to Cat Catapult. This is not a company I've heard of.

Jack Briggs: I wonder if you probably do know Catapults if you're a footy fan, I'm sure you would know Catapult. So Catapult makes for elite athletes, GPS devices that are used to measure their training loads and their performance. So that little tag, it goes just in most, um, afl, nrl, soccer, it goes just behind the neck between the shoulder blades. And they wear what looks a little bit like a bra under their playing gear or the training gear, and it sits just back there or it sits in the back of the actual jersey itself. And what that does is it allows the strength and conditioning coaches, and increasingly the tactical coaches to measure what, uh, that athlete is doing in a training load, how much they're running, how quickly they're changing direction, where there's any deterioration in those metrics that might show that they're fatigued and to manage their training loads, to manage them for optimal performance. So Catapult has been very successful in selling that product into soccer, into American football, into, you know, the nrl, the rugby union, the afl, volleyball, basketball, ice hockey, you name it. Catapult's continuing to do that and do that very well. And it is the market leader with greater than 50% market share in that wearables products into elite sport and into college sport. In the US Is also a large market and the business is expanding by buying, acquiring and also developing a suite of video products. So the video products are more aimed at the tactics side of professional sports and coaching and, and actually understanding what the players are doing and why and being able to coach them and less so, uh, about the actual performance and training conditioning part of elite sports. But where we think Catapult is really interesting, positioned to take share in that video market, which is a bigger market than the wearables market and has one large dominant incumbent called HUDL is Catapult is linking the two together and providing innovative insights where they're able to show that an athlete is not moving fast enough to actually close down the space that needs to be closed down. The defender has got a little bit too much room when they're trying to move the ball. The striker starting to lag. Maybe it's time to make a substitution and get the fresh striker on who can close down that space a bit better and not let them move the ball out of defense quite as easily. So that's where we think CADPalk can add a little bit more value. And we're excited recently about their acquisition of Impact, which is a scouting product. And what that is. It's the kind of closing the gap to huddle around feature functionality to allow them to accurately displace, uh, huddle across all elements of the value chain. And so we think that's a real unlock to accelerate the revenue growth over the next three years by being able to offer that scouting product which has uh, a database of athletes performance and allows you to track and edit and produce scouting packages internally and allow that decision makers to view those. So our differentiated perspective on the company is that they've got a superior product and it's only a matter of time till revenue growth reflects that market share in that video side of things, built on the back of their dominance in wearables. And we expect revenue growth and operating margins to accelerate over the medium term.

Phil Muscatello: And there's nothing more important than sport.

Jack Briggs: Absolutely.

Phil Muscatello: So they've got markets in North America as well, if you're talking about American football.

Jack Briggs: Yeah. So obviously as an Australian company, it started here. You know, the AFL and NRL teams were some of its earliest clients. Globally, soccer is the biggest sport. Obviously, you know, soccer is the biggest sport globally and that's reflected in the, in the customer numbers through Europe and South America as well as in the US and Australia. But the biggest market by volume is uh, college sports. So obviously American colleges, a lot of those sports, have significant tens of millions of dollars budgets behind them across college football and basketball. And so they're as big, if not bigger than some of the professional sports teams in our uh, end of the world and parts of South America, Europe, et cetera. So Catapult's done a really strong

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Jack Briggs: job of penetrating those colleges and selling into volleyball, selling into basketball, selling into ice hockey, selling into baseball and having all these athletes use those products very broadly. And that really opens up the total addressable market from being, you know, call it a few thousand top tier professional sports teams to being 20,000 professional sports teams, including these, you know, semi professional or professional light college opportunity set.

Phil Muscatello: So Jack, we've got one last company to talk about, gdg. Tell us all about it.

Jack Briggs: So GDG has three different businesses under the hood. So we'll start at the top with the investment bonds business. So, uh, an investment bond is a structured financial product targeting the advice market and often retirees. And it's very tax effective. So it allows you to invest in underlying managed funds, but in a way that minimizes your tax obligations. GDG is the market leader with greater than 50% market share. And essentially they are the ones educating the market and building the market in this product. And they've been very successful in accelerating the amount of sales of that product over Time and in demonstrating strong value to customers with the tax outcomes. That's got tailwinds in the sense that changes to superannuation and the tax effectiveness of superannuation mean that mums and dads are looking for better ways to invest for retirement. And we think investment bonds are a great solution for that. And advisors are showing that they think so too and putting more of their clients into that product. Secondly, GDG owns the Evidentia managed accounts business. So on a similar perspective, as more of Australia, uh, are reaching retirement age, they're switching out of being in industry funds and retail superannuation funds and they're going to get advice to help them plan for what retirement looks like and manage the complexity of tax structures and the complexity of their lifetime risk. And what that's saying is big flows into the advice market. And the amount of money under financial advice in Australia is growing quite strongly. The number of financial advisors is growing nowhere near as quickly after the government's reforms post the royal commission in 2019. That's cut a lot of advisors out of the market because the education requirements are a lot higher. That means that the advisor number is not growing. Those advisors need to be more efficient to service the large number of people demanding their services. And Evidentia provides the answer to that through their managed accounts products. So a managed account allows an advisor, uh, to make changes to your portfolio on your behalf without asking you every single time. Often that is a big unlock for the advisor, actually making good decisions for the client as well as the advisor being able to take you on as a client, begin with at an affordable price without having to charge you more. Because every time they want to do something they have to talk to you, which costs them time and money. And so that business is structurally growing very strongly. Managed accounts are around 200 billion of the 1 trillion of financial advice. Very rough numbers, but they're growing at around 20%. So they're penetrating that base very quickly. And evidentiary is the market leader with the largest portfolio and the broadest suite of capability. And so we think they continue to hog market share and grow that top line at that 20% rate, which is very attractive. And we think it's a solution that'll work. And the final, the smallest part of the business, but uh, maybe even the highest quality is the Lonsec research business, which we as Ellison capture a client of, where they rate our funds. So they'll come and interview us and figure out if we know what we're doing and if we've got a robust process that underpins what we're doing with our investments on a daily basis and whether that process is appropriate for financial advisors to put their products into. So they, through some issues with some of their competitors, have essentially become the default de facto name in that space. And that gives them enormous market share and pricing power. And that's a product that's uh, only growing in its relevance as we see more of these compliance issues with things like the first Guardian and shield issues that ah, have uh, seen investors lose large chunks of capital. The requirement for independent research review both to allow advisors to fall back on that as professional indemnity, but also to provide comfort to end investors is only growing so broadly. All three businesses are strongly exposed to structural growth drivers that we say volumes growing strongly 20, 30% plus. These are scalable business models where we expect margins to expand with that level of volume growth. And we think the share price has pulled back quite strongly on the risk off fears around war and around sort of broader uh, risk off through the tail end of last year. And so we think you're getting quite attractive prices today where we didn't own the shares a few months back where the prices were much higher. And we thought that we're factoring in the full growth potential.

Phil Muscatello: And this is a um, growing industry, isn't it? I think we're reaching peak 65 year old either this year or next year. And there's a lot of people retiring and are going to be me needing products like this.

Jack Briggs: That's right. And I think the thing the market's maybe not fully understood is that we reach peak turning 65 year old but the number of 65 pluses continues to grow quite strongly for another five plus years because those turning 65 stays at that elevated level for a while now. So it's a very strong structural growth driver of that and a few other investments that we've made like aged care, et cetera.

Phil Muscatello: It's a boomer, um, bulldozer.

Jack Briggs: Yeah, sure,

00:40:00

Jack Briggs: absolutely.

Phil Muscatello: Radio Jack, tell us about it, how listeners and viewers can find out more about Elliston Capital. And presumably these are the kind of funds that would be found in people's superannuation accounts or part of their greater balances and how the funds have performed over the last few years.

Jack Briggs: Absolutely. So ellistoncapital.com would be the best place to start where you can look at the full range of products that we offer. You know, my team works on the Australian Micro Cap Fund, the Emerging Leaders Fund, the Australian Emerging Leaders Lump Fund and the Australian Mid Cap Opportunities Fund. Fund. We have reasonable long track records in the micro cap and small cap products where we've very roughly, uh, over reasonable periods of time been able to produce mid teens returns, which are very attractive versus what the benchmarks produced. And you know, we're very proud of the results that we've produced for our clients, which are, you know, predominantly mums and dads, investors who've trusted a financial advisor to allocate their hard earned savings to us.

Phil Muscatello: Jack Briggs, thank you very much for joining me today. Today.

Jack Briggs: Thanks, Phil. It's been my pleasure.

Phil Musatello: Um, thanks for listening to Shares for Beginners. You can find more at sharesforbeginners. Com. If you enjoy listening, please take a moment to rate or review in your podcast player or tell a friend who might want to learn more about investing for their future.

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Any advice in this blog post is general financial advice only and does not take into account your objectives, financial situation or needs. Because of that, you should consider if the advice is appropriate to you and your needs before acting on the information. If you do choose to buy a financial product read the PDS and TMD and obtain appropriate financial advice tailored to your needs. Finpods Pty Ltd & Philip Muscatello are authorised representatives of MoneySherpa Pty Ltd which holds financial services licence 451289. Here's a link to our Financial Services Guide.