By Sebastian Evans | MD and CIO of NAOS Asset Management
What is the stock?
Big River Industries Limited (ASX: BRI), an integrated Australian timber products business.
How long have you held the stock?
Since the IPO in April 2017.
What do you like about it?
Four main factors being:
- Stable proven management across many level of the business.
- BRI operate in a highly-fragmented industry, potential opportunities for consolidation.
- The stock has little market awareness and very few, if any other institutional investors are on the register.
- Excellent cash flow generation and balance sheet flexibility.
How is it better than its competitors?
The business has been in operation since the early 1900’s and is one of only two suppliers of locally sourced softwood and hardwood formply products.
BRI has reinvested into process efficiencies and machinery to allow it to compete both on price and quality, unlike many of its competitors, who continually defer capital expenditure. Finally, as a locally-sourced product, Big River have a clear competitive advantage, as many large scale civil and infrastructure projects are required to use products made locally. BRI also has the balance sheet flexibility to fund growth via acquisition or through cash flow generated by the business.
What do you like about its management?
The CEO has been in the business for over 10 years. The rest of the key management personnel have also had extended tenures with the business. There has been very little staff turnover. Their industry experience, coupled with their knowledge of customer requirements and the competitive landscape, is second to none. Importantly, many of the key management personnel are shareholders in the business, which creates strong alignment with other investors.
What is your target price?
At what point would you sell it?
Either around our valuation or if there was a significant deviation from the initial investment thesis.
How much has it added (subtracted) to your overall portfolio over the last 12 months?
Top 4 contributor through FY2017.
Where do you see value?
As mentioned previously, BRI is not well known by the wider investment community. They are in a unique position where they are able to leverage their locally manufactured products (which are often first on a building site) and then on sell other building products to customers throughout the build. Finally, if BRI continues to show they can grow sustainable earnings through internally funded bolt on acquisitions, the market will afford a higher P/E multiple to the BRI valuation.
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