Views on Life & on Equity Investing

Wonder, Wealth & Abundance

Boring business, dazzling performance

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I wrote about the Supply Network (ASX:SNL) four months back, which I held in only few accounts because of low growth of 10%-12% here:

The weakness of the company is the strength of its business model. The weakness is the vast variety of trucks operating in ANZ and the business is to sell after market parts, consequently the company has to hold on to a large number of spare parts. Inventories are more than the companies entire equity + reserves. ROE is smashing 25%.

The company differentiates by holding high quality components and keeps the parts readily available locally, rather than ordering just in time, this investment in the parts/inventories are the bane of the competition. Quarter million dollar truck earning several thousand dollars a day, in need of a 1000$ part is unlikely to compromise on quality or an extra day of wait.

The industry for spare parts is multi billion AUD in Australia/NZ, SNL has only a fragment of this share, ~100 million AUD revenues but focuses only on quality parts for all models of trucks/buses. Somehow this combination of centralised procurement and decentralised management and decision making and all the variety of parts imported from 100s of locations available readily locally on site has worked out for SNL. Hard to find a more boring, humdrum and invisible business than this. The chart says, otherwise, 20X in 10 years.


Written by amitdipsite

June 11, 2018 at 10:26 am

Posted in Uncategorized

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