Small Companies

No ordinary team

Outside the heavily researched S&P/ASX Top 100, lies the fast-paced world of small and medium-sized companies. Joining First Sentier Investors over a decade ago, Dawn Kanelleas met Pavlos Totsis and Michael Joukhador, a duo who first met in high school and were drawn into our graduate program. They’ve worked together ever since.

A skilled eye for growth in Australia’s most dynamic market segment

Meet Dawn Kanelleas

When she’s not gleaning new perspectives from art exhibitions large and small, Dawn Kanelleas curates a portfolio of Australia’s best up-and-coming companies.

We look beyond Australia’s largest names

As small companies flourish, revenue and earnings growth are typically expanding at their fastest point in the company’s lifecycle – growth that the larger, more mature companies of the ASX find difficult to replicate. Medium-sized companies can also offer a strong growth profile, but at a more mature stage of the company lifecycle.

Our team invests in a dynamic universe of small to medium-sized companies. 

Performance of the index versus our fund.

Source: First Sentier Investors & Bloomberg. Data as at 30 June 2019. Past performance is not indicative of future performance

Successful managers not only have to identify stocks with the potential for strong capital growth, but avoid the stocks likely to suffer sharp falls.

There is typically greater risk and reward outside the Top 100 stocks.

Source: First Sentier Investors. Data shown one year to 30 June 2019. 

A small company to watch

NEXTDC, a premier data centre operator, is just one of many high-quality small companies operating across all areas of the Australian economy.

By favouring companies with sustainable competitive advantages, strong financials and predictable earnings, we seek to deliver superior returns and minimise downside risks. Value is discovered through a bottom-up investment approach.

Stock price performance of NEXTDC on the ASX

Stock price performance of NEXTDC on the ASX.

Stock price performance of NEXTDC on the ASX

Stock price performance of NEXTDC on the ASX
Source: Bloomberg. Data to 30 June 2019.
Source: Bloomberg. Data to 30 June 2019.
$179.3 million
Underlying EBITDA1,2
$85.1 million

More data than stars

There will be 40 times more bytes of data than stars in the known universe by 2020, according to the World Economic Forum.

The team invested in Australian data centre operator NEXTDC in 2014 because they could see that organisations’ data requirements are becoming so large, there is little choice but to outsource to the professionals.

NEXTDC generates strong cash flow from long term customer contracts – and their clients’ growing data demands. Given the exponential pace of demand, NEXTDC can confidently reinvest this cash flow in even more data capacity, delivering returns to shareholders above their cost of capital.

Today, NEXTDC remains a significant position in the small company portfolios. As corporate Australia experiments with new technologies such as Blockchain, 5G and Artificial Intelligence, we expect the demand for NEXTDC’s access to popular cloud vendors will grow.

The rise of cloud computing and mobile apps have fuelled the growth of companies like NEXTDC, and now Blockchain, 5G and Artificial Intelligence are coming.
Dawn Kanelleas
Senior Portfolio Manager, Small & Mid-Caps

A different take on markets in 2019

Dawn Kanelleas shares her market outlook, the drivers of performance in the CFS Wholesale Australian Small Companies Fund, and some stocks to watch.