Doug Macphillamy of Bennelong Australia Equity Partners believes founder sell-downs, while often viewed with suspicion, can be positive if handled correctly. He emphasises that measured, predictable sell-downs, where the founder remains significantly invested, are not necessarily detrimental to investor confidence. Macphillamy cites Temple & Webster as an example, where co-founder Mark Coulter sold a portion of his shares but retained a substantial stake, demonstrating a transparent approach. Temple & Webster is an online furniture retailer known for its wide selection and user-friendly platform. The company aims to provide customers with stylish and affordable furniture options.
Macphillamy also notes Dicker Data, a technology services business, where founder David Dicker sold his remaining stake. He points out that while Dicker was instrumental in the company’s early success, the operational aspects are now managed by CEO Vladimir Mitnovetski and CFO Mary Stojcevski. Macphillamy suggests that Dicker’s exit could enhance stock liquidity and broaden the investor base, potentially paving the way for index inclusion. However, he stresses the importance of monitoring insider activity, particularly when founders or executives buy back shares, viewing it as a strong indicator of undervaluation.
Macphillamy’s investment philosophy focuses on identifying companies with superior earnings growth and strong management teams. His fund, the Bennelong Emerging Companies Fund, has achieved notable success, ranking highly among Australian small-cap strategies. The fund’s top holdings include companies like Mader and Supply Network, which share characteristics such as high returns on equity, low gearing, and consistent organic growth. He emphasizes the significance of alignment between company leadership and shareholders, seeking out leaders who are passionate about their businesses and focused on long-term strategy.
Despite market concerns about valuations, Macphillamy remains optimistic about small caps. He believes that with potential interest rate cuts on the horizon, consumer and service-focused businesses within the small-cap market could experience further growth. He emphasizes that the positive effects of rate cuts on consumer confidence and spending typically become more pronounced after the third cut, suggesting a favourable outlook for the smaller end of the market.
