In the evolving technological landscape, it’s become increasingly clear how pivotal AI will be in shaping future strategies. While short-term applications of AI, such as customer service chatbots and co-pilot productivity tools, are becoming more commonplace, the broader vision of leveraging AI to revolutionise corporate strategy is still unfolding. This transition, particularly in the context of leveraging vast corporate data, may be gradual due to inherent corporate risk aversion.
During a recent flight to the Global Federation of Competitiveness Councils meeting, the following Socrates quote came to my attention: “The secret of change is to focus all of your energy not on fighting the old, but on building the new.” This sentiment encapsulates the transformative journey corporations must undertake in the AI era.
For investors, the tangible benefits for companies that effectively integrate AI can be broadly categorised into three areas:
- Productivity Enhancement: AI can significantly augment people-centric processes within organisations, unlocking new levels of efficiency and workflow optimisation.
- Creation of New Revenue Streams: Leveraging AI for personalised marketing and data-driven insights allows for novel revenue generation strategies, transforming how businesses interact with customers.
- Sustaining Competitive Advantages: AI enables the development of unique customer solutions that are challenging to replicate without access to extensive historical data. This creates a formidable competitive edge.
As we step into this burgeoning AI-driven era, our focus at ECP remains on evaluating the business models, financial health, and growth strategies of potential investments in a careful, considered and committed way.
A thorough approach lets us pinpoint those quality growth stocks poised for long-term success. Their agility, ability to swiftly capitalise on emerging opportunities and adeptness at applying AI to harness market trends and demands are critical factors in their continued success and the creation of substantial long-term value for our investors.
Companies with an SCA are especially well-positioned to reap the economic benefits of AI. Their resilience to market disruptions (i.e., business model disruption or price-led competition) and the high barriers to entry for competitors needing similar data assets make these quality companies well-positioned to capture and retain the economic benefits of AI while maintaining their competitive excellence.
Over the past few years, our industry and society have evolved more broadly with heightened expectations of corporate responsibility. Being a compassionate corporate citizen, committed to people, the planet, and the community, is no longer optional but essential.
At ECP, we proudly embrace these values, as evidenced by our third annual Sustainability Report. We are committed to ensuring that our business employs best practices to position our organisation so that we can continue to sustainably grow through time.
We appreciate our role in the investment community, and we will continue to focus on growing our clients’ financial wealth, but our commitment extends beyond financial growth to include contributing to the societal well-being of future generations.
Turning to our portfolio, we’re encouraged by the notable uptick in our companies’ price-to-earnings (P/E) ratios, rebounding from previous lows. This, combined with robust short-term financial indicators – including organic sales growth, solid earnings, and increasing dividends – fortifies our confidence in the future. This positive trend suggests a promising trajectory for valuation enhancements across our investments.
The recent performance of our portfolio underpins our optimistic forecast, with an anticipated internal rate of return (IRR) of ~14%. Given the current market landscape, we see a prime opportunity to invest in high-quality franchises. These market conditions are ideal for investors seeking resilient, growth-oriented investments, positioning them well for long-term outperformance.
At ECP, our primary focus is investing in quality businesses within the growth phase of their lifecycle. For investors, the material derate of equity valuations, particularly for growth-oriented stocks, and the expected ongoing volatility present an opportunity for those investing in resilient, Quality Franchises – it’s time to step in and invest.
Dr Manny Pohl AM
BSc (Eng), MBA, DBA, FAICD, F Fin, MSAFAA
Executive Chairman and CIO