Aug 3, 2024 · 35 min
Lower rates test small-cap resilience and recurring-revenue models
IC029 ST James Place, Games Workshop, McDonald's, Microsoft, AIM SaaS Companies Quartix Technologies, Dotgigital, Eleco, & Fintel
The episode connects interest-rate changes with consumer demand, market sentiment, portfolio concentration, and the durability of smaller software businesses.
- 1Lower UK rates could support consumers, housing-related businesses, indebted companies, and neglected small-cap shares.
- 2Portfolio reviews expose contrasting strengths, from Games Workshop’s integrated model to challenges facing Diageo, Microsoft, and St. James’s Place.
- 3Quartix, DotDigital, Eleco, and Fintel show why recurring revenue, retention, organic growth, and core-product focus matter.
Don't miss
The hosts draw together Games Workshop, Meta, and Apple to argue that strengthening a company’s core product can create clearer paths to future growth.
The brief
Chris and Lee open with the investment value of recurring revenue, customer retention, and churn, setting up a comparison of SaaS businesses with different levels of visibility.
They argue that lower UK interest rates could lift consumers, housing activity, indebted companies, sentiment, and especially small-cap shares, while examining Mortgage Advice Bureau’s intermediary platform.
Portfolio updates span Games Workshop, Diageo, McDonald’s, Microsoft, Meta, and St. James’s Place, balancing operational strengths against weak sales, fees, AI spending, and concentration risk.
Quartix, DotDigital, Eleco, and Fintel shift the focus to recurring revenue, retention, organic growth, acquisitions, and the discipline of building around a core product.
The episode’s clearest through-line is that strategic focus can strengthen growth: Games Workshop, Meta, and Apple are used to illustrate the value of a central offering.
What was said on this episode
34 statements · 26 positive · 5 negative · 1 mixed · 2 neutral
Quartix loses approximately 14% of customers through churn.
“the likes of Fortix have quite a big customer churn. I think they lose 14%.”
Listen at 0:15
The Bank of England’s forecasts suggest further interest-rate cuts may follow.
“they published inflation forecasts as well, suggesting that there could be further interest rate cuts ahead”
Listen at 3:30
Lower interest rates reduce indebted companies’ costs and increase profits.
“those companies that have debt as well are going to be able to secure that at lower levels, paying lower levels of interest, which increase profits, which are good for shareholders”
Listen at 3:59
Interest-rate cuts should benefit small-cap shares and market sentiment.
“those key elements should be positive”
Listen at 4:24
Mortgage Advice Bureau’s earnings could spike if interest rates continue falling.
“Mortgage Advice could be a real beneficiary and you could see a big spike in its earnings in the coming months should rates keep coming down”
Listen at 5:29
Games Workshop’s return on capital employed increased to 176%.
“That increased to an eye-popping 176% return on capital employed.”
Listen at 7:43
Games Workshop offers approximately a 4% dividend yield, excluding special dividends.
“you get a nice 4% dividend yield with it as well”
Listen at 7:53
Diageo’s sales fell 1% in the twelve months ending June.
“sales in the, in 12 months, the end of June fell a percent”
Listen at 8:41
Diageo’s Guinness sales rose 14% overall.
“Guinness sales rose 14% overall”
Listen at 9:14
McDonald’s $5 meal bundle is performing well, especially among low-income consumers.
“their new meal bundle is on offer in the States for $5. And it's been performing well, particularly amongst low-income consumers.”
Listen at 10:43
Microsoft’s quarterly revenue rose 15% and net income increased 10%.
“Overall revenue in the quarter rose 15%. So that's the whole business. Net income was up 10%.”
Listen at 12:20
Microsoft is committing approximately $19 billion to AI capital expenditure and equipment leases.
“it's spending the money it's spending in AI, $19 billion all told into AI in capital expenditure and leasing equipment leases as well”
Listen at 12:32
The CrowdStrike incident affected 8.5 million Windows computers, under 1% of Microsoft’s footprint.
“Microsoft said that 8.5 million Windows computers were hit. That was less than 1% of its total footprint.”
Listen at 12:56
Meta’s revenue rose 22%, operating profit 58%, with a 38% operating margin.
“revenue rising 22% ahead of expectations, operating profit up 58%, massive margin, all a bit like Microsoft, 38% margin.”
Listen at 14:41
Meta’s average daily users rose 7% to 3.3 billion.
“average daily users rose 7% to 3.3 billion”
Listen at 15:38
AI-related concerns could affect Alphabet, Microsoft, and Meta valuations together.
“their valuations that are all going to be affected by the same sentiment, in my opinion”
Listen at 18:12
St. James’s Place reported £1.9 billion net inflows and 94.6% client-fund retention.
“Net inflows in the period of £1.9 billion. And not only that, what I find also incredible, 94.6% retention of client funds.”
Listen at 19:14
St. James’s Place funds under management reached a record £182 billion.
“its funds under management are at a record £182 billion”
Listen at 19:49
Self-managing investments could save St. James’s Place clients tens of thousands of pounds.
“they'll be saving over the lifetime of the investment tens of thousands of pounds”
Listen at 21:13
St. James’s Place has a robust business model despite criticism.
“it's pretty robust, as you say, pretty robust business model”
Listen at 22:17
Quartix has a substantial growth opportunity in European markets.
“There clearly is a massive opportunity there.”
Listen at 23:55
DotDigital revenue rose 14%, including 9% organic growth.
“revenue again was up 14%. Not all of that's organic, but that's still 9% organic growth.”
Listen at 24:57
DotDigital’s Asia-Pacific revenue grew 27%.
“Australian Pacific region's been really good for them. 27% revenue growth.”
Listen at 25:16
DotDigital has consistently been profitable and cash generative.
“DotDigital has always been profitable and cash generative.”
Listen at 26:16
Eleco revenue increased 21%, including 12% organic growth.
“revenue increased by 21%, of which organic growth was 12%.”
Listen at 27:12
Eleco recurring revenue represents approximately 70–80% of forecast revenue.
“it now represents, I think, around 70-odd percent or 80%, I think now, of forecast revenue”
Listen at 27:39
Annualized recurring revenue provides one-year forward visibility into subscription revenue.
“at any point in time, you are going to know for a year going forward how much of your revenue, what percentage of it is effectively nailed”
Listen at 28:40
Annualized recurring revenue reflects the stickiness of subscription sales and revenue.
“the annualized recurring revenue reflects the sticky nature of sales, your revenue”
Listen at 29:10
Eleco’s customers are probably stickier than Quartix’s customers.
“Eleco again is probably stickier.”
Listen at 30:01
Accounting-system providers often have the stickiest customer relationships.
“the stickiest of the lot, I feel, are often the providers of accounting systems”
Listen at 30:22
Fintel appears to be growing primarily through acquisitions.
“Fintel is growing primarily, seemingly, by acquisition.”
Listen at 31:12
Fintel made five acquisitions in six months and nine in twelve months.
“made 5 acquisitions in a 6-month period. 5 acquisitions bringing it to 9 in the last 12 months.”
Listen at 31:19
Rapid, diversified acquisition programs make Lord Lee skeptical of companies.
“I'm always a bit skeptical of companies making loads and loads of acquisitions very quickly. In a host of different areas.”
Listen at 32:20
Apple succeeds with relatively few interconnected products.
“the largest company in the world, or has been the largest by market cap for a long time, Apple, for such a huge business and has relatively few products, but they all tie in together”
Listen at 33:51
Statements are attributed to the speaker as said on the episode and reflect their view at the time, not PodLume's. They are not advice.
Featuring
St. James's Place
Fintel
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