This article was produced in partnership with First Sentier Investors.
The Australian sharemarket is fortunate to host a number of high quality, home-grown companies that have been able to transport their success in Australia to offshore locations and become global leaders.
Companies with these compelling products and assets are able to run their own race, and show potential to generate compound growth in cash flows for investors into the next decade.
Here are some of the high conviction stocks we are watching, with attractive characteristics including strong franchises capable of increasing market share and the ability to grow earnings and generate superior returns on capital.
Growing sleep apnea awareness to drive market growth: ResMed
ResMed, through its continuous positive airway pressure (CPAP) masks and devices, is a global leader in the treatment of obstructive sleep apnea (OSA) with over 70 per cent of the global market share.
ResMed recently reported a robust 1Q25 profit result in October where every region and segment delivered double digit revenue growth, lifted gross margins, delivered operating leverage and improved its return on invested capital.
Long term demand for ResMed’s sleep and respiratory products is generated from growing awareness and diagnosis of OSA. Awareness of OSA as a medical condition should continue to grow over time and may get a material tailwind from digital wearables such as the new Samsung Watch and the new Apple Watch that are approved by the US Food and Drug Administration (FDA) to diagnose sleep apnea.
The Microsoft of global freight forwarding: WiseTech Global
WiseTech Global has established itself as the de facto industry standard in freight forwarding software through its renowned CargoWise product. As a result, the company has consistently delivered double digit revenue growth since it first listed on the ASX in 2016.
WiseTech Global now has 14 of the 25 largest global freight forwarders using CargoWise as their core platform and has more recently guided to rising margins and accelerating revenue growth in FY25 with the launch of a number of significant new adjacent products that provide its users with valuable cost savings, lower emissions, better service and capabilities.
Cloud adoption and AI opportunity, a long-term driver: Xero
Xero is the world pioneer for cloud-based small and medium enterprise accounting software. With approximately 4.2 million global subscribers, it is the market leader in Australia and New Zealand, UK, Singapore and South Africa.
Xero recently achieved its ‘Rule of 40’ target (combined revenue growth rate and profit margin equals or exceeds 40 per cent) and delivered a refreshed FY25-27 strategy, both of which reinforced the company’s focus on balancing growth with profitability versus a growth at all costs mindset and balancing subscriber growth with price.
The on-going transition from excel/desktop accounting to cloud, and the opportunity to leverage AI, provides the opportunity for Xero to accelerate their subscriber base growth over the next decade.
Pallet pooler makes strides on transformation program: Brambles
Brambles is the world’s largest pallet pooling company with over 347 million pallets, crates and containers across more than 60 countries globally. Brambles has been executing its “shaping our future” transformation program that was first developed in 2021.
The transformation program has helped Brambles deliver initiatives aimed at improving its asset efficiency and inventory optimisation, which has translated into a reduction in costs associated with lost assets and overall capital expenditure. Further efficiency improvements should help lift Bramble’s underlying profit and free cash flow in the future.
Heading into 2025, the Australian economy is likely to be still growing steadily, as is the US whilst China slows its pace of growth. The First Sentier Investors Australian Equities Growth team is carefully analysing the profit results and business models of these companies with a focus on identifying structural winners. As one of the largest and most experienced investment teams in Australia, our insights come from very detailed analysis of the stocks in the ASX300, engaging with their management teams, clients and competitors.
Dushko Bajic is First Sentier Investors head of Australian equities growth.
