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Published 03 April 2013 14:56, Updated 03 April 2013 15:04
Making BRW’s Rich Bosses list is enough to fill any executive or company founder with a sense of achievement.
But the real heroes of the 2013 list haven’t just made themselves rich – they’ve boosted their shareholders’ wealth too.
Mostly, those shareholders will be names on a registry that the executives never meet. But not always.
Take Peter Bond, the irrepressible founder and chief executive of junior resources group Linc Energy.
In the past 12 months, Linc’s share price has soared 75.5 per cent, taking the value of Bond’s stake to $508.6 million.
Great news for Bond but also great news for a bloke called Mike Tompkins. The childhood school friend of Bond is a big (and occasionally frustrated) shareholder in Linc.
When his old mate wins, top 20 shareholder Tompkins wins too.
Below, we’ve profiled five Rich Bosses list members who are heroes in the eyes of their investors.
Leading the pack is Paul Kehoe, the chief executive of junior miner Syrah Resources, whose share price has leapt 370 per cent in past 12 months, taking the value of his personal stock to $66.3 million.
At financial services group Magellan Financial Group, the stock price is up 326.1 per cent over the past 12 months, taking the stakes of Chris Mackay and Hamish Douglass to $135.6 million and $78.9 million respectively.
Jamie Pherous and Claire Gray listed Corporate Travel Management in late 2010, when markets were hardly welcoming initial public offerings. But the stock climbed steadily and rose 109.2 per cent over the past 12 months; their respective stakes are worth $121.3 million and $24.7 million.
At the age of 89, most business people are slowing down. But Len Ainsworth, the executive chairman of Ainsworth Game Technology, appears to be just getting started. Last year AGT stock jumped 224.8 per cent, taking the founder’s stake to $670.4 million.
With such results, it’s no surprise that many investors are in favour of putting their money in companies where the founder and management have significant skin in the game.
But investing in a company where a founder or manager has a controlling stake can be a recipe for disaster if the founder takes a “my way or the highway” attitude. Poor corporate governance, overblown salaries and myriad related-party transactions are problems often associated with founder-controlled companies.
Don Williams, the founder and chief investment officer at Platypus Asset Management, is one who likes to see founders and managers put their money where their mouths are.
“For smaller companies, we generally prefer professional management with a decent shareholding,” he says.
“Even in the larger companies, the more of the discretionary remuneration that goes into stock, the better. Skin in the game is important.”
There is a body of research to support this.
In 2009, Robert Houmes and Robert Boylan of Jacksonville University and Denise Dickins of East Carolina University studied the stock prices of companies where “insiders” such as founders, managers and directors held large shareholdings.
The trio found that in companies with high price-earnings ratios (typically growth stocks), a large number of shares in the hands of insiders meant better share price performance; the opposite was true for companies with low P/E multiples.
More evidence comes from US fund manager RENN Universal Growth, which has created its founder-owner index, tracking 300 US companies of different sizes where the founder has a large stake.
The results suggest backing entrepreneurial managers could have advantages: over 10 years, the S&P 500 Index has increased 53 per cent while RENN says its founder-owner index is up 228 per cent.
That’s the good side of having a founder or manager as a dominant shareholder.
The bad side, says Martin Lawrence of proxy advisory firm Ownership Matters, is the founder who acts as if the company doesn’t have any other investors or stakeholders.
He cites the example of apartment builder Central Equity, which raised investors’ ire back in the mid-2000s after three directors with large shareholdings, Eddie Kutner, Dennis Wilson and John Bourke paid themselves more than $2 million each. The trio eventually took Central Equity private.
Lawrence says investors need to go into companies where the founder or managers have a controlling stake with their eyes open and realise that some founders do a poor job of listening to other shareholders.
“It’s kind of the other side of the astonishing self-belief and determination that gets a founder to that position,” he says.
The best-case scenario, Lawrence says, is the founder who recognises their weakness, and is prepared to bring other managers in if, for example, operations are not their strong suit.
The worse-case scenario is the founder who can’t see that the world has changed and refuses to adapt.
Of course, in some cases, shareholders may be willing to put up with that sort of founder if they believe the positives – such as an intimate knowledge of the business and a proven track record for growth – outweigh the negatives.
And if you disagree with a founder’s views, don’t expect them to be able to change it, experts say.
“We are not shy in putting our views forward, although often in those situations you know you won’t get a positive response,” Williams says.
“Even if the people have a demonstrated track record of adding lots of value, when it comes to the time where they are not adding value, or when you violently disagree with them, all you can do is sell out.”
Here are seven executives who represent the best aspects of having a founder or manager with a big stake – our Rich Bosses shareholder heroes.
Share price rise in past year:370 per cent
Syrah Resources’s share price more than quadrupled in the past 12 months, up from 70¢ to $2.98 under managing director Paul Kehoe.
Shareholder anticipation had built around Syrah’s graphite project in Mozambique and it was rewarded in January when the company announced Balama was the world’s largest known graphite deposit.
Kehoe, an accountant and geologist, has held senior management roles at PwC and Grant Thorton, in addition to geology and business development roles at a number of Australian-listed resource companies.
Kehoe’s involvement with Syrah began in 2011 when African Eagle Resources, a British-listed company, agreed to sell uranium licenses to Kehoe and a group of other investors. Among them was Tolga Kumova, who had listed Syrah Resources on the Australian Stock Exchange in 2007. The uranium licences were vended into Syrah in exchange for stock. Kehoe is now Syrah’s largest shareholder.
The company shot to prominence in May 2012, when its share price doubled in one day on the back of results from just one drill hole at the Balama project.
Back then, Kehoe’s confidence was high. “We know more about this deposit than something that might have had 100 drill holes which is underneath the earth. We are confident it’s a world-class deposit.”
Investors clearly share that confidence.
Photo: Andrew Quilty
Magellan Financial Group
Share price rise in past year:326.1 per cent
Strangely for a country with a big financial services sector, Australia has never really found an export market for the funds management skill it bred. Offshore managers flock here hunting a slice of our pensions pie but the traffic is rarely in the other direction.
Chris Mackay and Hamish Douglass, the chairman and chief executive respectively of Magellan Financial Group, are trying to change that.
The former investment bankers endured some lean years after starting their business one month before the financial crisis officially began in August 2007 but stuck by their vision to create what’s never before existed: a global asset management powerhouse based in Sydney.
Magellan’s global equity strategy, run by Douglass, aggressively implements ideas. In mid-2011, backing a recovery in US housing starts, his team famously put 10 per cent of its fund into only two stocks: Home Depot, and hardware retailer Lowes.
The bet paid off spectacularly and Magellan’s global fund has returned 8.3 per cent annualised over the five years to December 31 – the best global equities fund return available to Australian investors by a full 5 percentage points. Those investors rewarded Magellan with ever-increasing inflows and the world began to take notice.
The global fund was awarded a $3 billion mandate in February by UK unit trust group St. James Place,
The win, which it’s understood will net Magellan $15 million a year in management fees alone, sent the share price further into the stratosphere – it appreciated threefold over the past 12 months, cementing the MFG ticker’s place in the ASX 300, and the place of Mackay and Douglass on our list.
Photo: Sasha Woolley
Ainsworth Game Technology
Share price rise in past year:224.8 per cent
Len Ainsworth has had a sweet year in more than one way.
While the combined fortune of his family has for years put the poker machine baron among the top ranks of the country’s wealthiest, a tripling of the share price of Ainsworth Game Technology lifts him on to the Rich Bosses list for the first time.
The company’s after-tax profit nearly tripled to $64.3 million last year.
Sales and market share rose in Australia as gambling increased on the back of the government’s clean energy household cash payments and the end of regulatory uncertainty. The government rejected proposed pokie reforms and gave club owners the confidence to replace ageing machines.
The company also expanded in the US. Ainsworth, who founded his first poker machine company (Aristocrat Leisure) in the 1950s, handed the shares in that company to his seven children in the 1990s after he was diagnosed with cancer.
After the cancer went into remission, one of his sons objected to the earlier arrangement that they give him half the proceeds if they sold the shares.
Ainsworth then set up his eponymous company in competition with Aristocrat. He listed it in 2001.
The rise in AGT’s share price is the result of long-term planning and heavy investment in technology, says Ainsworth, the majority shareholder.
“It is our expectation that, as a result of ongoing investment, we will continue to progress on a worldwide basis,” he says.
Photo: Glenn Hunt
Corporate Travel Management
Share price rise in past year:109.2 per cent
Corporate Travel Management founder Jamie Pherous says technology is your friend when it comes to corporate travel bookings and payments.
The former Arthur Andersen accountant has had a friendly relationship with technology for years, having co-founded online hotel booking engine Quickbeds.com.au, which he sold to Flight Centre in 2003.
Technology has also been crucial to the recent growth of CTM, which he founded in 1994 with just two staff.
Even at a time when corporate travel budgets have been tight, the company has won business and market share by providing tools that allow clients to control their costs, he says.
Acquisitions – such as that of US-based R&A Travel last year – also boosted revenue growth.
And the company, which swelled its coffers by $10 million through a capital raising last month, is on the lookout to expand into the ranks of the top 15 corporate travel agents in the highly fragmented US market after another purchase.
Pherous is the largest individual shareholder – with a 31 per cent stake – of a company whose price has jumped 109 per cent in just 12 months.
Executive director Claire Gray, who started her career with Harvey World Travel in 1984, went on to form independent travel management company Travelogic in 1989.
Travelogic merged with CTM in 2008 and Gray is now the second-largest individual shareholder, with a stake worth just more than 7 per cent.
The green shoots of an economic recovery are showing in the US, if not yet in Australia, and the company looks set to benefit once companies ramp up their travel spending. “Corporate travel is the one thing that really goes when business is ‘on’,” Pherous says.
Photo: Glenn Hunt
Share price rise in past year:75.5 per cent
The stellar run Linc Energy shares have had since December last year means a lot to chief executive Peter Bond, not just because he profits as a 40 per cent shareholder but also because it validates the diehard believers in Linc, some of whom are Bond’s close friends.
For example Mark Tompkins invested heavily in Linc in the early days based on his belief in Bond’s abilities as an energy entrepreneur and as a deal maker; Tompkins is one of Bond’s childhood school friends.
But like most Linc shareholders, Tompkins was frustrated at the long period of the stock’s static performance when he spoke to BRW at the end of last year, particularly throughout 2012, when any increase in share price was exploited by investors keen to sell.
The Queensland government’s continued consideration of underground coal gasification(UCG) without any approval for its commercial use in sight put a question mark over Linc’s strategy in Australia and short traders were quick to exploit the doubts about the company’s future by piling into the stock.
Bond has been telling the market for some time that the real value in Linc’s UCG technology is in partnership with energy companies in overseas markets but, in Linc’s case, it seems actions do indeed speak louder than words.
The breakthrough moment for Linc’s stock performance came in October last year when the press caught on to a visit to Linc’s Chinchilla site by Russian billionaire Roman Abramovich.
Since then, Linc has broken its shackles, rising from around 55¢ at the end of October last year to be trading around $2.70.
The 400 per cent increase in Linc’s share price in five months not only drove Bond’s net worth into the realm of the ultra rich but it paid off for his mates, including Tompkins.
with Michael Bailey, Michael Bleby, Jessie Richardson & Matthew Smith