Market volatility and substantial shifts in share prices provide the opportunity to refine the businesses we own. During the June quarter the Polen Capital Global Small and Mid Cap Fund initiated four new positions in Alight Solutions, Markel, Shift, and Tomara.
Alight Solutions, is a leading cloud-based provider of employee engagement tools and solutions for workplace benefits, payroll, administration, and wealth services. Their ubiquitous, mission-critical, one-stop platform serves 36 million employees and their family members (more than 15 per cent of the U.S. workforce). It is a market leader already present in over 70 per cent of the Fortune 100 and 50 per cent of the Fortune 500. Its legacy benefits administration business has 97 per cent revenue retention and multi-decade customer relationships, which we believe can support the expansion of its scalable, cloud-based holistic business process as a service (“BPaaS”) offering to its broad footprint of existing clients and into new customer segments.
Markel is a U.S. headquartered insurance company with three drivers; specialty insurance; public investments; and private companies. The company is often described as a “mini-Berkshire Hathaway” and has done a terrific job for decades underwriting policies and investing the float to produce significant returns, in our belief. The company seeks market leadership in each pursuit, understanding the customer needs and providing quality products and services. We think its valuation is very attractive and expect a mid-teens rate of return over the next five years.
Shift is a Japanese-headquartered technology company that specialises in software testing. The market is vast, and an estimated 98 per cent of the workload is handled in-house today, even though companies like Shift can deliver this service materially cheaper and more efficiently. The company has a strong track record of hiring, training, and retaining talented engineers. We expect the company to continue to deliver strong organic revenue growth for the foreseeable future. Earnings before interest and tax (EBIT) margins are also already strong but likely to increase, cash flows are abundant, and the balance sheet is net cash. This is a “flywheel” company that we believe can deliver compelling earnings growth in the future. While valuation is optically expensive based on the next 12 months’ earnings, the total return potential remains very attractive over our investment time horizon.
Tomra is a Norwegian industrial company focused on recycling and sustainability. The business has three units – collection, recycling, and food. The common thread through all units is machines with corresponding software and services that help the world recycle more efficiently. The food business is a natural adjacent category where the company improves quality assurance. The secular tailwinds are clear for this business, particularly in Europe, and Tomra has an enviable market share in all three business units.
If you would like to learn more about the Polen Capital Global Small and Mid Cap Fund, please visit the fund’s web page to learn more: Polen Capital Global Small and Mid Cap Fund
The Polen Capital Global Small and Mid Cap Fund own shares in Alight Solutions, Markel, Shift, and Tomara. This article was prepared 15 August 2023 with the information we have today, and our view may change. It does not constitute formal advice or professional investment advice. If you wish to trade these companies you should seek financial advice.