Money Talks: 80-20 Investments’ Angie Ellis shares her hot software stock tips
Link copied to
Money Talks is Stockhead’s regular drill down into what stocks investors are looking at right now. We’ll tap our extensive list of experts to see what’s hot, their top picks and what they’re looking out for.
Today, we hear from Angie Ellis, investment manager at 80-20 Investments.
Ellis is currently keeping a close eye on the information technology sector, specifically the area of software.
“I watch this space as I understand it the best,” she told Stockhead.
“I founded a very successful software consulting business in 1992. We computerised the accounting, sales management and point of sale systems for over 250 businesses over a 12-year period.
“I got a deep understanding of the many issues businesses face as it scales – managing cash flow, staff, competitive forces and customer engagement. This gives me a good insight into assessing high growth stocks.”
Here is Ellis’ checklist on how to identify a good company:
– Winning awards (check out NZ Hi-Tech Awards for companies to watch);
– Global focus;
– High proportion of recurring revenue;
– Partner distribution network;
– Sticky product (the customer becomes tied down and can’t easily leave);
– Deep relationships with global leaders (e.g. Microsoft, Google);
– Strong competitive advantage;
– High barriers to entry;
– Patent protection;
– SaaS with long term contracts; and
– Great management with lots of skin the game.
Ellis said she sees an increasing focus on capturing and using data to produce better meaning, value and experiences for consumers.
“Consumers are demanding more choice and control in what they consume and how they consume it,” she explained.
“This has real implications for the software industry in how they design applications and manage personal data.”
Ellis said users also wanted more transparency and control over how their data was used, and consumer protections.
“Commercial models of the past are being broken apart and the ethics of software development being challenged.
“There is significant investment toward automating processes, activities and tasks that are repetitive in nature, and where computers can be trained to provide this function.”
Add to that the fact that internet of things (IoT) devices like speakers, smart thermostats and wearable devices all need software written for them.
“Bain predicts that IoT devices will reach a market of $520 billion by 2021,” Ellis noted.
“Developing cross platform solutions that perform well with voice recognition or in virtual reality will be a major trend.”
Ellis sees an increasing focus in platforms, applications and tools based on machine learning and artificial intelligence.
“AI makes it possible to employ computers to perform tasks that we believed only humans could do, resulting in high productivity and cost savings,” she said.
Ellis’ first pick is Serko (ASX:SKO), which has a market cap of just under $300m at a share price of $3.69.
“They reported strong growth recently,” Ellis noted.
The company’s total operating revenue for the year to March 31 jumped 28 per cent to $23.4m, while recurring product revenue was up 26 per cent to $20.7m.
“Their corporate travel management software is used by Flight Centre, Telstra and Microsoft,” Ellis said.
Serko often provides the travel technology on a “white label” basis meaning it is rebranded with the name of the travel manager.
The AI capabilities of the software are designed to continually improve the traveller’s experience by recommending itineraries based on individual travel preferences.
Around 95 per cent of travellers accept the AI driven shortlisted itineraries.
“I picked this one as there is huge scale potential through their partnerships and they are making a serious push into the US and European markets,” Ellis said.
Next on the list is LiveTiles (ASX:LVT) — a SaaS digital workplace platform with a market value of $291m at a share price of 44c.
“They have a deep relationship with Microsoft. LiveTiles will be a part of Sharepoint’s Home Sites,” Ellis said.
“I have used their products and met management many times. I picked this one as they are managing the growth well and have a huge global market.”
Medical SaaS technology company Volpara Health Technologies (ASX:VPT) also makes Ellis’ top 3.
Volpara, which has a market cap of over $330m at a share price of $1.85, has developed AI image algorithms that assist in the early detection of breast cancer.
There technology is used in nearly 40 countries and is supported by numerous patents, according to Ellis.
“I picked this one as it operates in all global markets and I see a lot of potential through the Microsoft Co-Sell collaboration,” she said.
Angie Ellis has been investing full-time for five years and is featured regularly in The Age/SMH shares race. She speaks on investing through the Australian Investors Association. In the last shares race Ellis came first with a 71 per cent return at the end of the six weeks.