A Decade Study of Global Top-Performing Companies | Global Outperformers w/ Dede Eyesan (TIP605)

(00:00) when I really ask myself you know  where exactly would I find the least difficult in terms of investing and holding on to out  performers I would say one these the areas that within my circle of competence and for  me I like consumer businesses because I find it easier to understand when a cosmetic brand  is failing rather compared to like a chemical business I don't know in India is is struggling  I have I have no idea if a company is struggling but it's a cosmetic business I can speak

to  the consumers they tell me you know I this (00:30) brand over another brand and I find  them easier to track their product relative to the [Music] competitors me and DayDay had  a great conversation in the summer and I still have so many questions left for them so I brought  him back on to continue the conversation on global o performers as well as to discuss some of the  business that Jenga IP has invested in to start off I wanted to ask some questions specific  to some interesting geograph

ies China showed some very interesting differences from some of  the other countries you researched in terms of (01:03) shareholder returns and earnings  growth dislocations When comparing China to the US Japan and India it had a much lower  shareholder return as a percentage of businesses that were compounding earnings greater than 20%  you mentioned three potential causes for this problem one state-owned Enterprises and mixed  own Enterprises make up 40% of China's market cap two Chinese compa

nies rank relatively  poorly on reporting standards and three the Chinese government can quickly alter regulatory  environments on a whim which can adversely affect (01:32) profits in entire Industries so my  question is do you see the China discount closing anytime soon or you think that this is  something that investors will need to accept when they get exposure to Chinese businesses I thanks  for the question I think as an investor it's just it's safer to expect the discount to always  be the

re and what that leaves a stock picker from an action view is rather than projecting 20  times endings you project 10 times endings and you just make sure so the margin of sa safety is (02:02) much bigger in the Investments you make in China so I mean the three areas that we try to  explore so one of them being the fact that they a lot more state-owned Enterprises um if you look at  the top 10 largest companies in China six out of 10 of them are State own and if you compare that  to India it's f

oreign us is much less so you have a lot more state owned businesses and most of them  grow much slower um there's a bit more they grow much slower from an F their profit margins are  not necessarily as high as the private businesses (02:35) outside so for example I mean and they go  much slower and the quality can sometimes be less so I mean that's one of the big factors when you  look at the banks in China you look at pingan and the other big firms the their potential for upside  is much less

and that isn't just with China I mean it's pretty much throughout Asia because if you  look at it country major apart from India majority of the largest companies tend to be the banks  utility businesses energy businesses and they just have a much lower growth profile so from a (03:06) compounding L lens they they're much tougher from a reporting um governance view  um that what then I would say is there's been a lot of improvements in China I mean one  thing we have to put into perspective is t

hat you know the US market has had more than  100 years of existence whereas with China most of the businesses only went public in the 990s  so they really only had 20 years and investing is something that requires all parties involved  the investors have to have you know the knowledge base U the shareholders have to be able to know (03:41) they also have to have the knowledge base that's required so it needs all parties  involved and China's only been 20 30 years in this in terms of development

of a stock stock  exchange so there's been a lot of progress um for the future one thing I do see is that ifs has kind  of made invest in from a global lens much easier so you think about recent changes like you know  IFRS 16 and how you know the Chinese accountant standards have also incorporate Incorporated that  into their own report it becomes much easier to (04:13) compare companies in different geographies  so I mean that's been that's also been one of the big factors I guess with China a

nd I think it's  from an investor it's one of the re to be I guess more a bit more optimistic going forward excellent  so Asia clearly has a good runway for growth you mentioned that Asia's share of global GDP has  grown from 26% 20 years ago to 34% 10 years ago to around 40% today in the meantime us and European  shares of GDP have fallen over the last decade from 36 to 28% and 31% to 23% respectively so (04:48) for investors who are uninterested in China due to geopolitical risks and what you 

just discussed what are some other countries that you see in Asia that are likely to produce  outperformers in the coming decade so does a strong strong correlation with all performers  when you look at the Innovation you look at the market size so the consumer Market there's  quite a bit of a strong correlation there so in Europe one of the most well pretty much the  Innovative countries like Germany Sweden produced a lot more performers than the ones that (05:17) are less Innovative and the o

nes that had big markets also did quite well the  UK has a big Market they did quite well Sweden doesn't have a big Market but then they  have very strong competence in exporting to Big markets so they did really well so when  I take that perspective in Europe and I fight in Asia again I again focus on the big markets  so beyond China the other big two big markets you know you have India you have Japan you have  South Korea now one thing that not many people I didn't realize until I did this stu

dy is that (05:46) there are a lot more companies listed in in Asia than any so while us companies are much  larger and you know you have trillion dollar businesses in in in the US in in Asia they're  much they're lot more companies so Taiwan has a population of 26 million and if you compare that  with the UK it's 67 million but then again Taiwan has over 2,000 businesses listed and it's way more  than than I think it's twice as much yeah almost twice as much companies are listed in Taiwan  than

listed in us if you compare South Korea (06:22) and Germany I mean they're two really  Innovative countries but then South Korea has four times as many listed businesses in Germany  and and Germany's GDP is for his is more than double that of South Korea so you can see that  there's just so many businesses listed in South Korea so while these countries would produce a  lot of outperformers remember we have to look at the sample size the sample size is just so big so  I think it's going to be ve

ry hard to go through all the companies in South Korea for example or (06:52) trying to find you know the out performers so I mean one of the areas I've been looked at  was the turnover to outperformers so the number of listed businesses that become our performers  I think those are an area that a lot of Asian companies didn't do really well in now the F  point is where I think they're going to be a high turnover to all performers and I think  India although the market is quite expensive now I t

hink India will be somewhere I would focus  on um one there's less the private sector has a (07:21) plays a much stronger role in terms  of business activity there two there's a track record of out performers there um there's lots  of growth po potential they're benefiting from current geopolitics they think about the amount  of capital that's shifted from China to other parts India's been one of the beneficiaries there  you have a lot of public strong businesses that are looking to set up you k

now operations  in India and look into the Indian market do you think about Apple now trying to have (07:51) some of its manufacturing operations in India that's going to benefit some local  players you think about the impact Amazon's having and it's driving innovation retail segment  in India I think that's going to have a bit more impact there and there going to be some more  performance there so I'll also Focus I'll spend quite a bit of time on India the drawback  for with India is that as a

foreigner it's you can't really invest in India so you have to  be an Indian national or you're if you're a (08:16) phone manager you have to get you know  the license to be able to invest in India so that's the drawback well with investing there  and Japan just to conclude Japan is also quite good but with Japan I think it's much better  to focus on areas where the Japanese economy has some competitiveness in so one of the big  facts with Japan is that an Asian population and if you look at the

out performance there  you'll see quite a bit of businesses they're more skilled towards demand of an aging  population so you think about technology (08:45) using Healthcare to make processes much  simpler you think about Care Homes you think about services for Care Homes those are the things  that we're outperforming in Japan um so I'll focus on those areas where I think the Japanese  economy has some form of global competitiv ning excellent so India is a country that I find  very interesting

for some of the reasons that you just outlined and as your study shows  there are many op performers that are coming out of India and given the continued growth of  the country in terms of GDP I think there's (09:12) a good chance it'll probably be at the  top of your study if you did it again in 2032 however India does have certain drawbacks and I  wanted to discuss them in a little more detail let's first start with the governance issues in  India what do foreign investors need to think about

if they're able to actually invest there  um about governance in order to improve their competence in investing in India I think one of  the byproduct of having so much success so quickly is that he attract so many potentially bad (09:41) players so when I think about this relative to in the stock market I mean if  you look through 1992 when you know the stock market was really formed and organized  well to today there's just been so many sucess stories um So Stories meain cases of companies  g

rowing from one rupe per share to 10 rupe per share and then 100 rupe per share now what  that happen is that you're going to attract people who want to take advantage of the system  so they list bad companies or they just want to benefit from that super fast growth in stock (10:13) exchange and as a result it had certain frauds you've had so many frauds in in the India  stock market um from my personal experience in terms of looking at companies was a recent  one with a company called britcom g

roup and um they're still listed but there was just so  much you know inconsistency going on fake bank accounts being created by managers and you  know the accounting was just not real I mean so many issues and this is a this is not just  India this is emerging markets and companies that are trying to grow really quickly this is (10:45) what happens um the one thing I would say is in in in India and Emerging Markets you have  to place a lot more focus on quality and what I mean by quality not ju

st you know quality from a  business level also quality from the terms of when you assess management you assess management you  assess the employees and you assess you know its customers and the real relationship the business  has with its customers they have to assess all those factors and I mean if you're invested  in us and quality was probably I mean quality (11:16) growth valuation if quality was just 50%  of was 50 50% of your I guess your investment process in India know the emerging mark

ets  I'll make quality maybe 75% so you really need to place a lot more focus on that quality  factor and you really need to think about the business case and if um if you have a business  that produces coal and has software margins and is growing 50% each year you really want  to question where how that how that adds up and and really just asking those really basic  questions and and I guess spending a bit more time (11:52) on ground trying to famili familiarize  yourself with other shareholder

s and also with management and just really asking those questions  understanding the culture um I think that's the way to overcome the governance issues um in  India and do you think that Regulators in India are trying to solve some of these governance  issues through improved regulation like what are you seeing there I mean I'm not I'm not  a strong I don't have a strong expertise on on the regulatory view um regulatory aspect in (12:23) India but I mean one thing I would say is that there's de

finitely been a lot more  progress in terms of the inform shareholder in terms of the information companies need to  put into their prospective so I was looking at a few Indian companies earlier this year and I was  actually quite Amazed by how much information they had shared about the business their stores  the economics in their perspectives and I'm I'm guessing there was a bit of encouragement  from a regulatory view there as well and also when you have you know the mutual fund (12:51) indus

try in India growing um the mutual funds in general have quite a bit  of sophistication in terms of the questions they're going to ask management um I think  that also plays a regulatory view um where your potential shareholders are of higher quality  and going to ask you much more tougher questions I think that's also going to play u a big role when  you think about the level of reporting in India but I mean I'm guessing there's definitely been  quite a bit of effort um in this place and also (

13:21) when you look at the penalties for f  um false accounting or for you know reporting late or not reporting at all I think India is  definitely doing um some work here excellent so what are some of the specific value chains in  India that you've been spending time researching and why do you think they offer upside in the  future so I I mean before zooming into the value chain I think it's really important  to put where India is in perspective so India is a country that has GDP per capita of

  about 2,500 2,500 is really really low and um (13:57) if you look at you know m S&P and you know  moodies and all the estimates out there there's a lot of estimates on India being able to grow about  six s% this year and for many years for the future I mean there's a big chance that India will be the  third largest um economy by the end of this decade so you really need to put that into perspective  um and when you think about that I kind of imagin myself if I was in India what would really be

  benefiting from that growth and one of those big areas I I think are Necessities really so you have (14:29) a lot of households that don't have Aces don't have refrigerators you know the basic  amenities and I mean you look at like I guess mainly the rural parts so you think about areas  like the Hindi Hatland like biha States like biha or Jaan or UT Pradesh those are cities  where they're really going to benefit from you know this exponential growth with India and  India's economy and again t

he value chain there for me is electronics consum Electronics  now zooming more into consume Electronics there's the manufacturers producers and (15:00) then also the retailers I'm a bit more interested in the retailers because  with the manufacturers there's a lot more competition as an Indian player so there few  there are few Indian um manufacturers there but I think there's a lot more competition in  the retail side that requires a lot more on ground expertise and it's much more harder for I

  mean Amazon's Amazon's already in India but when you think about expanding to the rural bits it's a  lot harder there just because of the logistics and (15:27) you know the standard of living there  so I think that's a value chain that's um going to benefit over the next few years um the  main player that which is unlisted is um Reliance Digital which is one of the it's  owned by one of the conglomerates in India but there few smaller players there they're  more Regional focus and another thin

g about consumer electronics if I if outside India  I would never invest in electronics retail because it's failed for many years I think it's  going to keep failing for many years when India (15:59) you have a state that has 200 million  people in it's just one state in um in BHA there's 130 million people in ut prades I think  there's about 200 million people if I'm not mistaken but you have so many people in one state  and 5% of them in we for example don't have an AC and this is a hot climat

e you know they don't  have an AC maybe I think about 16% don't have refrigerators I don't see why this couldn't grow  up to 60% so if that grows to 60% in years time you know these Regional players are where you (16:32) know people in these states are going to buy Aces from yes it's you know it's a  oneoff purchase but when you think about the number of the share number of households I  think it's a it's some that has a lot of room for growth beond Electronics retail I'm  also looking at Health

care so one of the Lins I learned in when I did this research was  India is really the is really the hospital of the world I when you think about the amount of  apis active pharmacetical inrs that that made in India um is just so big so I think Beyond just (17:03) you know the generic drugs you're going to move more into services so quality hospitals um  Quality diagnostic Centers um technology services not many of them are listed but I wouldn't be  surprised if in the few years you see a lot mo

re listed companies one of the listed companies that  have been studying christna Diagnostics um they're one of the players in this area so I'm also  studying that um um value chain and really trying to understand where exactly the potential for  outperformers for the future there and to conclude (17:34) their chemicals um chemical divisions  or chemical businesses have done really well in India because they've benefited from  The increased Outsourcing of I don't know like cosmetic products for

example so India's  done quite well there I haven't really looked into um the chemicals from a value chain lens  but it's one of the products I have for next year excellent so in our previous interview you  mentioned that we could open the discussion on types of outperformers that you think are easiest (18:01) to identify so seeing as myself and many listeners in the audience are always on the  lookout for potential multi Baggers I thought we'd pick up where we left off during our last  chat whi

ch type of outperformers do you think are the easiest to identify I think I think  a better way to frame is the least hard if if outperformers were easy oh my God I'll have  all the outperformers I could possibly think of but it's a very hard game and one of the reasons  why our performance is hard it's not finding it (18:28) it's actually holding on to them so you  if you're going to hold on to a company for 10 years like just think about the amount of times  that stock is going to drop 25% 30%

are you going to have the stomach to actually go through all  that volatility um some of these companies are out performers there were short reports written  about them and I mean now if a short report is written about a company on Twitter everyone's  going to say yeah I'm selling it but do are you going to have that stomach to really go (18:56) through that volatility and do the research you understand the commun so deeply  that if someone tells you yeah they're doing fraud you're going to say

no I've done the  research I don't think they're doing fraud I think it makes so much sense I think it's at  honest management are you going to have that stomach and that level of research I think that's  really the difficult part of investing in out performers there's finding out performers and then  there's investing in out performers and there's (19:20) no reward for finding them there's a  reward for invest in them so I think when I really ask myself you know where exactly can I Where What 

Where exactly would I find the least difficult in terms of investing and holding on to out  performers I would say one these the areas that within my circle of competence and for me I like  consumer businesses because I find it easier to understand when a cosmetic brand is failing rather  compared to like a chemical business I don't know in India is is struggling I have I have no idea (19:53) if a chemical company is struggling but if it's a cosmetic business I can speak to  the consumers they

tell me you know I prefer this brand over another brand um I think the  sh brand is doing much better so I I I like consumer businesses and I find them easier to  track their product relative to the competitors the other types of outperformers are areas where  I think it's either a deeply oligopolistic Market or there might even be natural monopolist so  a very good example of an out performer from the book that we did a case study on that I (20:25) think I would have if I knew about them 10 yea

rs ago I should have invested in was  airports of Thailand so Thailand they have about 44 airports all own by I think almost all loar  by airports of Thailand is a listed company went public I think just after the financial crisis and  it was an outperform between 2012 and 20 202022 and if you think about the Thailand economy it's  done really well in medical tourism number one um number two it's done really well in touris  it's also done really well in tourism overall (20:57) it's grown really

quickly and then also  as an airport as a business model it's just a fantastic business model when you think about the  aeronautical Revenue like the the airlines have to pay the airport you know money every year um  for every trip they do and then also there's the growing non non aeronautical Revenue so you  think about the retail stores in the airport that something they really expanded on um um  they benefit from duty free revenues that's that's a business that I think has little to no (21:27

) competition he has no comp ition from the aeronautical side but then he has very little  competition on the non- aeronautical side so I think that's something all of I wish I  I knew about in 2012 as a business model another example in the US is um was a commy  called Texas Pacific Land Corporation they I mean if you speak to the shareholders they'll  tell you they've had the worst management um of all time but it's been an outperformer  the reason why it's been an outperformer is that they ow

n literally 880,000 Acres (21:58) of land in Texas and all the big old companies pay them Revenue each year  and that's growing year and year and year because Texas has become a lot more in a lot more  important Market in the oil when you think about what has happened with frackin and Shale oil so  that's a business that it has no competitor on the land it owns uh it's it's really a target  for the energy sector in Texas and it's done really well um it's had bad management but still  don't quite

well and you know when Warren Buffett (22:30) says I want to own businesses that  even a bad management you know can't bring this down and then that's a really good example  I think that's a business that it's has a 90 90% roughly 90% ebit margin because it's zero on  CeX so that's a type of business that I think um I would love to have owned as an outperformer  but yeah just to conclude um yes there it's it's really having the stomach and having the level  of research to hold a company during

those those volatile times or during the pandemic or (23:01) during short reports those sort of things I think that's a real difficult bit without  performers and you're making a really good point there with the um with finding monopolies so  when you looked back in time say at that 2012 period did did a lot of these businesses that you  just talked about were they already monopolies or did they have to kind of establish themselves  as time went on to becoming monopolies so the two airports of T

hailand Texas they've they've  always been monopolies I mean well Texas isn't (23:31) really Texas specific isn't really a  monopoly because you could do business in other areas of Texas but where the own the line is just  so integral for oil and gas operations that you have to pay them you know some form of rent and  they also make money from using the water on the land so that was something that they were able  to also grow as an additional source of Revenue over time and then they can also se

ll some  of the land and make money of that as well so that was a monopoly in its own form um out say but (23:59) not I mean again not many of the of the um of the out performers were monopolies some of them  had technical buyers to entry um and they were able to build on that you know that competitive  advantage over time but they're they're quite difficult to really size up especially when you  look back in 2012 I mean a very good example in the US Nvidia that was an outperformer but  then 201

2 they were unprofitable and there wasn't really clear signs that you know I mean  now you would say yes there were clear signs (24:26) it's an amazing AI company you know I  of course I knew it was going to take over the world but then they were unprofitable there  was actually proper risk of bankruptcy and it wasn't really clear that they were GNA have then  they were mainly gaming I mean this was before they expanded into Auto and data centers they  were mainly gaming um chips so it wasn't re

ally clear that you know they were really gonna you  know get that much head um Tail wins over time that is too tough for me so I I I wouldn't I I (24:56) wouldn't try and you know look for those type of for businesses I I like things that look  more easier now that I've learned more about your investing philosophy and read your study multiple  times I have a much better understanding of the types of businesses that you are looking for  additionally have had a chance to look at many of the names

in your portfolio so for those in the  audience who haven't gone down the rabbit hole as much as I have can you let them know what the  primary attributes are that you are looking for (25:17) in potential Investments so I I'm I'm  looking for when I think about businesses I break them down into quality growth value and  really you're looking for businesses same thing looking for businesses with good economics that  this is the growing profitable return on Capital you're looking for second thing

you're looking  for businesses with a competitive Advantage um so it might be hype barus to entry um management  might just have a very deep level of execution High switching cost third you're looking for (25:49) things with own oriented management teams so not necessarily founder Le businesses  but bu businesses where the management are really aligned with shareholders and they have a deep  level of un orientation and then lastly you're looking for businesses that have a marginal  safety in te

rms of a valuation Viewpoint so I don't think that's rocket science I think  we're all looking for that and but it's really having one is having the level of energy to go  through so many businesses and go really deeply (26:16) in terms of the research to understand  these things um that's really what I'm trying to spend my time doing um as an investor so  there are two names that I find interesting that are no longer in your portfolio process and  kuu can you tell me a little bit about what you

r original thesis was on these names and what your  reasoning was for exiting these positions so when we when we had Karu then was called kartra the  core product is called kartra the Karu name is very strange because it has five O's but I (26:44) think it has it's a place in South South Africa that the founder had some Affinity  toward so that's why he called it Karu with five o but when we when we invested in those companies  we were running a South African only strategy so for the listeners I

grew up in Nigeria and I  wanted to invest in Africa I wanted to invest in somewhere in Africa because I thought you  know this would be something that would be fun but when I thought about the currency risk  um there were really only two countries I felt had a bit of a stable currency which was (27:14) Egypt and South Africa and Egypt being an Arabic speaking country I felt  culturally would just been too difficult for me so we focused on just South Africa  so when I decided to focus on South

Africa I did an ATC on the 180 plus listed companies  and Karu and nasas so we actually invested in nasas which is the parent company of prus who own  shares in 10 cents complicated but they initially stood out so kuu car truck then um it's a fleet  telematics business so basically they build a hardware they put in your car or your trucks and (27:55) there's also the subscription element or software element of it where they you're able  to track your vehicles your cars over time um there are lot

s of players in that in that field  so there's also MX telematics and there's some friend businesses as well where but what kart  track did was that they looked across the whole value chain so when you think about a vehicle  if it's stolen you can track the car but then it doesn't stop it from being stolen and when  it's stolen what then happen so what kartra (28:23) did was that they added another division  which was the recovery division so basically when your truck is stolen carart track had

a team of  people that would actually go into the field to actually try and recover it and that division was  very successful so he had a 97% recovery rate so when one of the customers vehicle was actually  stolen um it's if KRA sent someone there was nine in 10 chance Almost 100% chance that was going to  be recovered at some point and again you have to zoom out again with South Africa South Africa (28:56) three if you look at the top 10 cities with the highest CRI crime rates South Africa  has

three cities in there so the crime rate in South Africa is quite High relative to Africa  and also relative to the world so it kind of made sense why a business that was trying  to address something with crime rates was based in South Africa the other thing I like  about Kat Trak was that they were expanding outside South Africa so I think they're the  largest players in West Africa as well and a bit of the founding team were Bas in Singapore so (29:24) from a technology lens they were quite yo

u know globally minded did in terms of they were  trying to expand Beyond just South Africa so if the South African currency depreciated um the  revenue that they were making that were foreign currency would also do quite well um so overall  was a big was a good business I mean it earned a AIT margin of 31 32% each year it had little  to no debt on its balance sheet it was growing about 15% each year and when we bought our shares  there it was trading at about 17 18 times p ratio (29:56) so you

had a 15% grower 30% EB margin 30%  return on Capital that was priced at 15 times and I thought that was good value and what happened  was that the management got really fed up of the low valuations of South Africa so they said  they were going to D list in South Africa and then list in the US as Karo which they have  done but when that happened the share price was skyrocketed because everyone realized  was going to have a much higher valuation in the US so it tripled in like the few weeks  and

for me I thought I felt the value was a (30:31) bit too high so he went up from 15 times  to about 33 times so we sold a stock I think then was about 60 R per share and we had bought it for  about 23 R per share um so we sold that and the viation stayed a bit elevated so we never really  bought back in but I think it's a good business and it's one of the very few success stories of  software coming from an African country doing well globally I mean they're not the market  market leader globally

but they've they've done quite well expanding to other areas um (31:02) Beyond just South Africa and the other company was naspers so naspers I mean naspers is  the largest African company out there but then it's not the largest because of its operations in  Africa it's the largest because of its investment in 10 cent so why I'm a global investor today was  actually because of naspers because when I was looking at naspers and I was seeing they making  investments in I in Brazil in mro in in Russ

ia in 10 cent in China this was a team that was based  in South Africa but then they had a mindset of (31:38) we're going to look at technology in  other the emerging markets that are like South Africa because one Silicon Valley has their  own mindset of how technology should look like because they're based in us but then in the  Emerging Market because of the geography because of the c um consumer population because of the  GDP it's going to be look a lot more different so they literally they l

iterally went across  all the bricks countries and invested in in E Commerce and um Technology based businesses there (32:09) so the really successful one was 10 cent and I mean they owned about a third of 10 cent  and I started learning about gaming sector and you know weat as well and then 2019 if you looked at  10 C was lit literally a Flawless business and we bought a Stak in naspers and we held that up until  we closed the fund so focus on the global strategy in 2021 so that was a thesis fo

r npas excellent  breakdowns thank you so Evolution AB is a high quality business that is doing very well growing  top and bottom lines but being in a subset of (32:45) the I gaming Market scares a lot of  potential investors away due to seemingly low barriers to entry I'd be interested in  knowing your thoughts on Evolution's moat and how sustainable that you think it is so  I've we've held Evolution since 2019 and it's been I mean I've I've had the opportunity  to learn a bit more about you kn

ow the eye gaming industry but one thing I one thing I  would say I differ from most shareholders is that five years ago Evolution was a company  in the ey gaming industry now today given the (33:24) size it's at it's no longer just I  ging it's really uncertainty entertainment that's what I I call it it's about a business  that entertains its customers with the fact of uncertainty now as a customer I don't I  don't I've never used anything Evolution I found it about I gaming when I looked at th

e  stock when you think about as a customer as a consumer where exactly can I be entertained  by risk reward or uncertainty there's a stock exchange there's a stock market Robin Hood and (33:56) that's what people did in 201 20 where they were literally just gambling on you know  the stock market there's crypto as well so same thing happened there there's sports betting you  think about DraftKings and you know I think ESPN is now expanding in there as well and then also  there's landbased casino

s so when you think about Evolution gaming from uncertainty entertainment  you realize the market is actually really big so does evolution have a Mot in igaming yes it  does does it have aot in uncertainty management (34:30) sorry uncertainty entertainment no it  doesn't it's still far from a moe so there's still a long way for evolution to I mean it's  a 20 I don't know roughly 20 billion dollar business in the US it still has a long way to go  to really build um a mold um in in its business an

d it's doing well um I mean as a business  with I don't know 60 plus% AP margins still growing 20% although that growth rate has dropped  from 50% S four five years ago it's still doing quite well still has strong solid market chain (35:02) I gaming um the acquisition of net and when he tried to expand into RNG has not done  as well um but I still think there's room for improvements there and of course the valuations  has dropped um quite drastically over time and now they've announced a buyback

so it'll  be interesting to see you know how they keep executing further and the one thing  I'll tell about Evolution I mean among all the portfolio companies we own when I look at  execution from management um I will def I'll probably rate um Evolution probably the highest (35:34) um among them um and if you go back to the Prospectors and you look at the things within  the prospectus of what they were trying to achieve and what they've achieved today it's just amazing  they've consistent consi

stently created new games find two new games built Studios all over  all over the world in India and and so many different areas they've expanded really well into  the us as well which not many people thought they were going to do then initially when they when  they went public they were just in in the EU um (36:02) they've done really well there um so it's  it's been phenomenal just saying the level of execution um that the team have done at Evolution  so I've heard many reasons why the market

seems to dislike AB which you kind of brought up here so  um there's obviously been some issues with capital allocation that people don't like um and then  the decreasing growth rates which you mentioned but I'd love to get a sense of why you think  the market has been so stubborn with keeping the business's valuation so low considering (36:33) the quite obvious quality of the business how do you get started with Stock  Investing I've put together a course to teach you everything I wish I knew w

hen I first  started investing in stocks let's start at the beginning and ask what is a stock let's  zoom on in into what it's actually like to buy a stock a few options are Charles Schwab TD  amerit trade Ally eade fortunately you you won't have to necessarily calculate all of these taxes  yourself I'll outline a few main ones to be aware (37:04) of throughout your lifetime investing  Journey as Warren Buffett says your best investment is yourself there's nothing that  compares to it by the end

you'll be savier about Stock Investing in personal finance than  the vast majority of people even if you're not a total beginner I'm confident you'll get a lot  out of the principles and strategies I outline which we'll build on throughout link to the  course is available in the description below see you there so I I think Evolution has a good (37:34) quality but I don't think it has a strong mode and because it doesn't have a strong mode um  I don't think the valuation should be trading at I d

on't know 30 times or 40 times I think 28 times  27 times for me I think that's something that's a bit more optimistic well I think that's something  that that makes sense for evolution gaming now the problem is that three years ago it was at 60 times  endings and if you're expecting it to get back to 60 times ends or 50 times ends I don't think (38:02) that's going to happen I don't think it should happen and if it does happen again  I'll probably I'll probably be a seller of the stock so I thi

nk it'll be overvalued there so  I I don't think it's trading from a multiples lens too far I mean I think now is about 20 times  21 times um for I don't think it's too far from where it should be um in trading so you have a  little multiple revaluation from 21 to 27 and then hopefully we're able to get 20% enim growth  over the next 3 to four years uh I think to me (38:32) that's a good risk reward I I think  it's it's of good value if the multiples drop to 13 or 14 times then I think the Marke

t's  really being stubborn and really under the value where Evolution should be trading and I  mean management I think they're starting to be they're quite aware of you know the valuation Gap  and you know they've announced um share buyback about $400 Million worth of sh shares there's  still the dividends there um but whenever a company goes from high growth to just growth the (39:07) investors who want high growth leave the business and then it takes time for those who  want stable growth to l

earn about the business and I think that's where evolution is right  now where it's been growing 50% for the last I don't know 10 20 10 years and then now it's  in a place where it's no longer going to be growing 50 or 40 or even 30% more probably can  be growing 25 20 20 to 25% so those investors interested in high Ultra fast growth companies  no longer want Evolution and then people (39:38) like me who who want stable you know  predictable and I guess undervalued compies will start getting a b

it more interested um  so I think that's that that's happening with Evolution gaming or Evolution ab and the last  thing is the fact that Evolution has quite a bit of revenue from unregulated Market markets so  China and Co and it's well now it's still Revenue you don't know how long that's going to last  as revenue and it's still a lot of uncertainty on what happens in those division for the (40:07) future I can say with a with a high degree 95% degree of confidence that the revenue  they're ma

king from unregulated markets are going to be there in five years time so it's another  area that I guess investors have to be aware of um as a shareholder so I also think that's  why um the stock is at slightly lower multiples excellent thank you for that so I noted a new  addition to the Jenga IP portfolio a Finnish company called go for I'd love to ask you a few  questions about this business uh to start off can (40:40) you give a brief overview of what they  do and who are their customers ye

ah so go for so before we go to go for I did a deep dive on the  IT services industry mainly because of global L performers because I always looked at Consulting  as a lame commodity you know wacky kind of business but then when I did the study on global  out performers and I saw how many IT consulting were not just doing well but then were actually  profitable businesses they were growing each year and actually benefiting from things like cloud (41:13) computing and you know the the big shift h

appening in the world in technology it made me  realize that there might be some ID Consulting businesses that will be able to grow quite well  in slightly in a predictable recurring um way so I did that deep dive and I looked globally for  businesses that might be able to achieve that going forward and one of the ones I concluded on  was go for so go for the an IT consultant based in um in Finland and they started in 2004 originally  by four co-founders who I believe still own (41:49) about 30%

of the business so they  initially wanted to build software but then their software business I don't think they actually ever  took off but then they realize if you're not if if you can't build a software business this was after  the um Financial sorry after the tech bubble in 2011 um so they realize if if you can build a  successful software business would help other businesses U you know with their software so they  cover a range of ID Consulting so things like um Quality Assurance things lik

e um installation (42:20) management you know restructuring of software of web design web you know Arrangements  all sorts of things in IT consulting they do quite a bit broad range and they originally focused  on the public sector so Finland is one of the most Innovative countries in the world and  I think on some indexes is actually the most Innovative country in the world um so from  my thinking was that this is a country that if there's a new technology the public sector  are more likely to

want to you know be enabled by that technology and if they don't have (42:54) the people to do it they're going to look at at it Consultants like go for to do it  and that's pretty much what they've been doing for some time so initially started off with a  priv public sector Focus but then after they got listed they started expanding more into  private space and having private clients like K who do private clients and customers and the  business model is really by per hour basis so they charge y

ou know their their customers on  a Time based um lens and then with the public sector it's sometimes they contracts so (43:27) they will bid for a tender and if the offering is attractive for the customer so  it might be for example Ministry of Transport in Finland if they find their offering more  attractive than the other competitors they'll pick go for which they did in earlier this  year and it's it's those contracts tend to be more long-term and more recurring um in nature  so that's go fo

r's model and um yeah have to talk more about the financials and um why or we thought  was attractive yeah please feel free yeah so (44:01) with go for I mean they when when I looked  at them they had compounded between to between 2012 I think that's when the finan 2012 and 2020  they had compounded both revenue and profits by above 30% each year and twoth thirds of that was  organic growth and a third of that was inorganic growth so they started making Acquisitions  20177 and 2020 and this was

mainly to expand uh the expertise Beyond Finland so into Germany  and then also build expertise in private clients so that's where they were main acquiring and it's (44:40) quite common for it Consultants to acquire smaller IT consulting businesses it's it's part  of the strategy that's what the big guys do like accent and ttle Consulting so go for had a good  track record or growth and I was trying to figure out why exactly do they have such a good growth  track record and how long could that l

ast for so while I was learning about the business um I quite  learned I learned quite a bit about you know the culture of the team at the management level and  also at the employee level so one of the things I (45:09) like about goof for is that there's just  so much insight into the business so one they report their revenues monthly so literally every  month that you can see the Revenue data so before the result comes out um you know what's happening  already you can have an idea about that th

en there's a go for blog where employees from go for  write about you know things they're experiencing in the business so one of the cool things I I  learned about go for was that this was before geni so in 2017 they created their own internal (45:42) chatbot to eliminate the need of middle management within goo so goo have a very  lean U mid office very very L I think it's like maybe 10 20 people and this is a business  that has about 1,4 400 people and that says a lot about the culture because

they wanted to  eliminate as they wanted to fre up as much time as possible that they could just focus doing  you know productive things rather than billing so it's common for it Consultants to spend  so much time recording how many hours they spend enough project so they can you know bump (46:14) bump up the revenue they're going to collect from the customers but they wanted to  eliminate as much time as that that was one of the things I liked about them and then also  I looked you could also

see the customer um feedback reviews um that public sectors had and  I also you would also notice that I think about 82% of its customers um come back each year so  there's quite a high level of you know qu and stickiness from a customer base and they they win  Awards both in terms awards from a culture lens (46:47) if you look at the NPS score is much  higher than their local competitors and also awards from the quality of the work they've  done for you know The Finnish government has also done

quite well and lastly um management  have set management set an internal Target of growing revenues and profits 25% each year um 15  to 25% each year so 15% organic revenue and then another 10% from inorganic Revenue this year  they've grown 27% organically alone so they've they've outperformed that 25% each year since (47:21) they set that Target in 2018 so they've done quite well and I mean when I look at the  culture I look at the the customer feedback I think I think there there's an encour

aging sign  that things could still last quite a bit the founders are still involved in the business but  they've skilled back a bit so so Kirk who was the CEO he's now the chairman of the board and  then the current CEO he was he start he joined the business in 2010 and then became the CEO in  2019 um some of the other co-founders are still (47:49) we still own about 30% entirely of the  business um but they're still in the business in general and lastly on the valuation lens  it trades it trad

es at about 17 times nins and this is a business I think that can grow  25% each year it has an EB margin of about 12 12% return of capital of 14% that's at 17  times ending that's quite low relative to the international peers so one of the other businesses  in that space that I like Lely said in US is glob band glob band have a similar profitability  Revenue profit growth rate but then it's (48:27) twice as expensive on valuation lens  so I said three times for ending so if I can either buy one

and tataa consultant is also quite  good Tata is even more profitable than than G for but then it's it's slightly more expensive  and it's growing much slower than G for so when you put that into perspective I I thought  when I when we made the investment that go for would be a better pick um than the Alternatives  there so I noticed I noticed in your study that you talked about it cons insulting and like (48:56) you said I find it very boring as well and didn't seem like it would be a a big va

lue  Creator but clearly it is um so in obviously you've done a lot of research on it companies  what are what are their competitive advantages over their competitors like how are they able to  maintain these high margins and grow at such high rates yeah I mean I've I've I've learned to tie  what is exciting to where I see the opportunities so now I find IT consulting quite exciting  because I think the opportunities there are kind (49:27) of they're okay um they they they  went quite high from

a valuation lens when the pandemic happened and quite a few of them have  come down from a valuation lens but I think it's still going to be attractive going forward  now with IT consulting I think one thing you have to we have to realize as investors is that  technology is changing and the impact technology has is actually getting bigger so while I  mean some people would argue that the pace of Technology has slowed down but the impact  new technology has on business has increased (50:02) so yo

u think about how many businesses  I've tried to get gen on board within the space of I don't know six seven months it's much  faster than how people bought TVs I don't know when TV was you know created so the impact  at which people want to um add new technology to their business to their livelihood is so  much quicker now what that means is that if if you don't have the brightest people in your  company it's going to be very hard to keep up with technology like if you're a healthcare business

(50:34) where majority of your of your employees are Healthcare practitioners it's going to  be very hard to know which level which cloud computing provider I should use I use a should  I use AWS how do I you know do quality testing all these things so because there's just so many  options out there so I can use any cloud provider you know the the level of tech T to do each here  so much more quicker so much higher that's where Consulting comes into play because rather  than trying to build your

own it team which (51:04) can be very expensive it's something  you can partner up with a company like go for or Tata consulting and you have a company that's  solely dedicated to learning about technology and using their expertise as people to you know  bring it into your business and they're willing to be with you for many years so even if an  employee lives in tata there'll be someone else that comes in tomorrow they'll be able  to continue from where they stop I think that value proposition

makes a lot of sense for I (51:34) guess for businesses are not really exposed towards you know recruiting technology  serving people so you think about you know construction and you know just think about  Industries where it might be more public sector facing or there's less innovation  in general um I think IT consulting does a really good job there so from a competitive  Advantage lens so there there are lots of areas to look at it from a competitive Advantage  so one of the biggest ones is

the people so how quickly can you attract people and (52:05) that the Indian companies they have global domination there so when you look  at Tata consulting I mean the investors in India they're just incredible in terms of the  number of talents they bring and the companies there Tata infosis wo they have an advantage  of being able to recruit those people into their business much quicker than anyone else  um the polish businesses also Eastern Europe businesses also building some expertise ther

e in  terms of value for money in terms of being able to recruit but that's one area um in terms (52:36) of competitive Advantage another big area is really I guess the relationship  with the client um the ratings the feedback the the earase of working with them that's much  harder to gauge but it's something that you can gain by speaking to their customers so quite  a few businesses would Outsource their whole division to a ID cons Consulting businesses and  it's public knowledge that they've o

utsourced that to IT consulting and they just reach out  to one or two people and ask them you know how's that relationship going how do you (53:04) think Tata is responding you know working with them how do you think go for is  implementing those projects so I think those are the two big areas um that IT consulting  have the other thing is that it's a just to conclude it's a low barrier to entry industry but  it's quite High pror to success in the sense that being able to attract hundreds and t

housands of  people to work for your business it's actually very hard as a as a Founder you don't really see  many IT consulting businesses created by just (53:35) one founder it's usually like a team  of four or five people who left another it consultant set up their that's what happened  with go for you know that's what happened to a lot of these businesses so it's actually  quite a high barue of success industry and um I think it's one that probably going to see  a bit more out of fers going

forward but at the same time um there there are there are a lot of  losers out there so it's a I'll would say it's a stock Pickers Market where you really have to (53:59) differentiate between the really good consorted businesses who actually produce value  for money for the clients and the ones that just you know rely on their brand name and they just  focus on their brand name to grow the business those ones will be cut out and there's been quite  a few bad examples of of those type of busines

ses excellent so one of the standout points for  this business that you already pointed out was that um they have about 4% of the public uh  Market in um in Finland and then 1% or so of the (54:31) private Market um this means they have a  ton of market share obviously left to go um and that excludes International expansion which  you said they're already also working on so what what are your um what's your forecast for  their growth into the future yeah so my focus I think they I think they're

going to be able to  achieve the 25% for the next 3 to four years so that's in both revenue and EB an ibit and profit  there isn't really room for um margin expansion with Consulting because you're cost a many (55:04) people you can't reduce you shouldn't reduce the salary of people so you can't  really expand by reducing salary you don't have that much fixed cost so the the margins  in IT consulting tend to be quite stable and um it um go for have a policy I think the one  of the first companie

s to create a collective agreement between it consulant in Finland and  they try to increase the salaries about 4% each year I think they increased about 4. (55:30) 5% last year so that they try to keep that consistent and you need to have a good  culture to attract three tuned people so there's there isn't going to be margin of expansion but  in terms of growth from a qualitative aspect one thing I say is that go for have they're  probably going to make about they they've made about 1886 millio

n euros for the last 12  months probably about 200 million by the end of this year the The Finnish IT consulting Market  is five billion and you have a lot of foreign players and one of the one of the big things (56:00) especially with the amount of De globalization that was seeing now is that  public sectors want to mo more they want to Mo they want to work more with local players so  they that's one Trend and then also the big four consulting firms so you think about ey Deo  PWC they have a lo

t of problems with audit and Consulting so a lot of clients are scaling  back using them for their Consulting work and focusing on them for their audit work so that  created an opportunity for companies like um go for which are independent they focus only on (56:32) Consulting and they're also domestic where they can expand into you know the Finland  um public sector space so that's one that's one big tail when they have also some of the  competitive struggled um in the past few years um so V th

ere's vincet there's there's some  other local players in Finland they've struggled a bit in terms of growth and go from a cultural  perspective they've lost some employees um that's something go for has done quite well so they  have that Tailwind as well and then finally in (57:02) terms of growth I don't think they would  ever have maybe 10% or 20% of the Finland grow market so when they get to I guess when they when  they get to 500 million Euros which I think they might get that maybe in fiv

e six years I think  we're going to see growth really slow down then you need another layer of growth and that's  what they've done with their expansion into into Germany and the rest of the dark dark  region German speaking dut regions German speaking countries and Austrian Co so then right (57:35) now 12% of their revenue comes from that German German speaking countries and it's  something that I think they're doing a really good job in it's growing it's doubling every two years  in size and t

hey've acquired some really great businesses locally in Germany so one is IMO I  think they acquired that last year and that's done really well they've made previous Acquisitions  there and they're one of the few finish businesses that have actually done a good job expanding  into Germany um from a services landens (58:05) so I think that's another room also the  German Market is 10 times bigger than Finland so it's about a 50 billion dollar market IT  consulting market so there's a much much la

rger term there so if they can keep up what  they're doing from recruiting culture we need new clients both in private and public space um  I think they'll be able to continue growing um for for the next three to four years I think I  think the German region is going to be about 20% of total revenues by the end of next year so that (58:35) would be that that would be interesting to see over the near term day day thank you  so much for joining me today before we close out the episode where can th

e audience connect  with you and learn more about Jenga IP and your research yeah so our website is Jenga j n g.com  um we share our research there uh we try to keep our research open um I love the feedback I get  from readers so yeah always feel free to reach out to me if you read one of our research  and um you have some questions and I'm also on Twitter my um handle is D Dore a y an so (59:12) I'm on Twitter and also LinkedIn as well and I'm always happy to talk about our  research and what w

e're doing from a stock picking VI excellent IA margin 68% operating  margin 63% net margins of 58% free cash flow margin 62% I mean that's it's hard to find  businesses that that can do that for a long period of time and then on top of that the thing  that's really interesting is if if you go back 10 years all these margins have like doubled  it's insane how much more money this business is just making every (59:40) single year