Airlie Fund Management's best idea and why Posted in Stock Spotlights by Emma Goodsell on December 5th, 2018. About Airlie Funds Management Airlie is a specialist Australian equities fund manager which brings together some of Australia’s most experienced industry participants. Airlie has an active, value-based investment style that aims to deliver attractive long-term capital growth and regular income to its investors. Founded in 2012 by John Sevior and David Cooper, and headquartered in Sydney, Airlie manages a range of Australian equities strategies, primarily for institutional and high net wealth clients. Magellan Asset Management (‘Magellan’) purchased Airlie in early 2018, providing retail investors exclusive access to Airlie’s investment expertise for the first time, through the Airlie Australian Share Fund. airlieaustraliansharefund.com.au Recommendation: Reece Limited (REH.AX) Reece Limited was founded in 1920, and operates as a plumbing, building and hardware merchant throughout Australia. The Company offers a variety of bathroom, kitchen and laundry products through its national stores and showrooms. Reece’s products are utilised by plumbers, consumers, architects, builders and interior designers. What Emma says about Reece Limited The plumbing wholesale business of Reece is best compared with Tradelink. In 1998, Tradelink had double the sales and profit of Reece, which was a much smaller business. Investment over the past 20 years and a focused management team has seen Reece come to dominate.the sector, with sales increasing 6-fold and profit up 18x over the period 1998-2017, while Tradelink sales have remained fairly flat over the same period. Reece has enjoyed a consistently high return on funds employed (>15%) over many housing / business cycles, while still investing heavily in the business. There are 350 stores and per-store profitability has steadily increased. Reece has 140 software developers, which powers a very sophisticated supply chain, technology and customer service offering. Reece recently bought the 3rd biggest plumbing business in the US (Morsco). While Ferguson is the clear #1 across the US, its market share is weaker in the south, where Morsco is present. Emma firmly believes there is significant scope for inorganic and organic growth there. Even though Texas alone has a population greater than Australia, there are just 50 Morsco stores in Texas, compared to 350 Reece stores in Australia. Emma believes there is $3 of upside in Reece from current levels, coming from its US store rollout, improving US margins, and a slow but steady profit growth in its core Australian business. Company information REH: 5 year share history ASX Code: REH Market Capitalisation: 5.715Bn Volume: 371,309 52 week range: A$9.11- A$12.95 Bloomberg consensus: 2 Buys, 0 Holds, 0 Sells Average price target: A$13.18 Download this manager in focus as a PDF. DISCLAIMER: This communication has been prepared by Hearts and Minds Investments Limited (ABN 61 628 753 220). In preparing this document the investment objectives, financial situation or particular needs of an individual have not been considered. You should not rely on the opinions, advice, recommendations and other information contained in this publication alone. This publication has been prepared to provide you with general information only. It is not intended to take the place of professional advice and you should not take action on specific issues in reliance on this information. Past performance is not a reliable indicator of future performance. This document may not be reproduced or copies circulated without prior authority from Hearts and Minds Investments Limited.