Transcription of The Stock Network Interview with TIP Group (ASX:TIP) CEO, Andrew Coleman
Lel Smits: Tip Group is an ASX-listed investment firm utilising proprietary and research-driven insights to create better investors. The group implements a disciplined investment strategy to uncover long-term wealth-building opportunities akin to legendary investors such as Warren Buffett, Benjamin Graham and Peter Lynch. It operates as an active investments division where it takes direct ownership in medium-sized businesses and a passive investments division where it seeks to deliver long-term wealth creation through managed funds, investment products and other financial services. Joining me today is Tip Group’s CEO, Andrew Coleman. Andrew, welcome back to the Stock Network.
Andrew Coleman: It’s good to be here.
Lel Smits: Now, Tip Group unveiled its results for the last financial year this week. What were some of the key takeaways from those results?
Andrew Coleman: Absolutely. So our money on invested capital, which is the way that we view our private equity portfolio investments, rose to 3.0 times, implying a net return on invested capital for approximately 30% during the year, which we’re very proud of.
We achieved a 12% return on our passive investments portfolio and our funds under management increased by 12.5% to $274 million, which overall means that our net assets now stand at $85.3 million, or equivalent to $3.16 a share. Also during the year, we generated $6.8 million of operating cash flow, up 13% on last year, and of course, saw another lovely dividend and increase in profit.
Lel Smits: Brilliant and what do you think were the drivers of that result?
Andrew Coleman: Absolutely. Look, again, we are a huge beneficiary. We’ve spoken about before, Lil, of the power of compounding. When you make great investments and you leave them time and their operating teams the space to grow and deliver what we know they can do, not only do the results grow, but they grow at an increasing rate year on year. And that’s really the power of our group. We have curated over time a portfolio of very strong assets we think run by very talented leaders with great moats.
And we’re just sitting back and enjoying the benefit of them continuing to improve their competitive advantages whilst, of course, paddling furiously under the water, looking for new ones to add to the portfolio. So we added a few small investments this year, and I think we’ll talk about a few of them at some point if you want to go there. But in particular, what we’re really looking at doing is just continuing to drive that flywheel of our operating engine faster and faster.
Lel Smits: Excellent. Now, as you mentioned, the company implements a long-term wealth creation strategy for its investments. Can you outline why you do see this as the best approach for building wealth?
Andrew Coleman: So look, I think everyone’s got a different view on how they would like to drive returns.
But at the end of the day, the power of compounding has been shown for thousands of years of human existence to be by far the most effective way of building wealth long term. You know, we liken it to being on a pleasure cruise rather than having to paddle furiously in the rapids. Because really, at the end of the day, picking short-term movements in the market or short-term changes month to month in a business is a science that doesn’t really have an answer.
On the other hand, finding wonderful businesses, acquiring them at reasonable prices and equipping their management team with the resources, both human and capital, to grow has always shown to be a successful strategy. And the best thing is, is that as they grow bigger, so too do their moats grow stronger. And so not only do we get growth year on year, but we get increase in growth as effectively those wonderful assets become bigger players in their individual markets.
And that’s true whether it’s in private equity, where we’re taking an operating position, or in our passive investment side, where we’re finding often listed, sometimes unlisted entity run by great management with strong moats, where we go along for the journey as a more minority shareholder.
Lel Smits: Excellent. Now, I’m interested to hear how this investment philosophy has influenced your view approach investment in CSL. You have been invested in the company for some time. And of course, this week, the healthcare giant’s share price tumbled more than 20% following its results. Has your own conviction in CSL changed?
Andrew Coleman: We’ve been backing the truck up as much as we can over the last few days. I think now that the challenge so often inside div long term investing is maintaining your conviction and taking advantage of what Warren Buffett referred, Benjamin Graham actually referred to as the bipolar nature of Mr. Market. You know, one day it’s exuberant and the next day the sky is falling. And I think CSL is such an incredibly topical case because here is a pharmaceutical giant, you know, number one leader in the world in blood plasma and products, number one leader in hemoglobin and renal products, number two in viruses, that announced a 15% increase roughly between 14 and 19, depending on which metric you used in their underlying profits, and announced another 8 to 10% expected next year on what is already a globally huge business.
And the market somehow decided it was worth a quarter less to a third less overnight, which makes no sense on a rational basis. Now, to be fair to the market at $290 a share, CSL was overvalued, I think. So I think buying at $290 a share was always a risky strategy, not necessarily long term, given a decade, I’m sure it will justify that price, but it was probably overpriced.
But with the market getting down as low as $208, which was a PE of sub 20 for a company with that kind of growth rate, stability, moats, you know, low debt, incredible return on equity, wonderful management, incredibly strong business. Those are the kind of opportunities that as an active investor you’re looking for. And you get maybe once a decade, or perhaps more recently with market movements and passive investing a bit more frequently, maybe once every six months, sort of like our once in 10 year flood, we’ve been getting a once in 10 year investment opportunity every six months and I think if you missed it, backing the truck up on it at $208, you should be backing it up at $220.
Lel Smits: Andrew, always appreciate your investing insights. Thank you so much also for the update from Tip Group.
Andrew Coleman: Thanks very much, Lel.
Ends