More small caps are expanding overseas earlier in their life cyle. Simon Letch.
A new breed of Australian companies is pursuing rapid international expansion as investors re-rate small-cap stocks with global potential.
“We’re seeing more small caps expanding overseas earlier in their lifecyle.
Five years ago, fund managers mostly avoided small caps that announced bold overseas growth plans, such was the number of Australian failures overseas.
Even small retailers, insurance and building-materials companies are taking on overseas markets.
“There’s a lot more demand for Australian small caps that are successfully expanding overseas,†says Ivers.
Australian companies that succeed overseas inevitably benefit from comparisons to offshore firms with higher valuations.
Glennon Capital’s Michael Glennon says his firm’s attitude towards small-cap companies that expand overseas has changed.
Steve Black, co-manager of the Pengana Emerging Companies fund, another top performer in its category over a decade, is also wary of overseas expansion trends.
Five years ago, there was far more market scepticism when Australian companies expanded offshore.
“A spate of small Australian companies went overseas, failed and burnt investors.
COVID-19 has been a curse and blessing for small caps with international ambition.
The pandemic has weighed on Australian companies with international assets.
But in some ways, COVID-19 has bought more time for small caps that have pursued international growth in the past few years in terms of proving their strategy.
“It’s a cop out to say small caps have to expand overseas because they will outgrow this market.
“I’m not convinced more microcap companies are expanding overseas today compared to 10 years ago.
A relatively stronger Australian economy and our rising dollar works against small caps with offshore earnings and favours those operating only in this market
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