Ellerston Capital’s James Barker and his team have celebrated a significant investment win with SKS Technologies. Backed two years ago at 49¢ per share, the company recently surged to a record $5.82, becoming a “10-bagger.” SKS Technologies operates as an electrical contractor, providing crucial cabling and infrastructure for Australia’s expanding data centre industry. This “picks and shovels” role has fueled remarkable growth, with revenue forecast to jump from $35 million in 2021 to an estimated $350 million this year.
Despite this individual success, the broader small and micro-cap sector has endured a challenging year, marked by global geopolitical tensions and the threat of higher interest rates. In March, Ellerston’s $250 million Micro Cap Fund declined 9.9 per cent, and its $220 million Australian Emerging Leaders Fund lost 12.1 per cent, as investors reacted to potential Reserve Bank of Australia cash rate hikes. However, over three years, both funds have demonstrated robust performance, with the Micro Cap Fund returning 18.2 per cent after fees, outperforming its benchmark by 9.7 per cent annually.
Barker views current market volatility and “dislocation” in small-cap share prices as opportune moments. His strategy involves “bottom-up analysis” and increasing conviction in favoured stocks during dips, explaining Ellerston’s low cash buffer. Recent strategic investments include Duratec, a West Australian contractor with a strong defence work pipeline, and GemLife, a developer of over-50s land-lease communities where Barker believes the property sector sell-off is “overdone.” Servcorp, a serviced office provider, is another key holding impressing with sustained earnings growth. Barker’s team conducts extensive direct company visits, a vital approach given limited analyst coverage in the micro-cap space, ensuring they uncover overlooked value.
