Stock Picking – Wellcom Group (WLL.AX)

Stock Picking – Wellcom Group (WLL.AX)

2 Feb, 2016 | Stock Insight

The Wellcom story starts with industry doyen and patriarch Wayne Sidwell. One of the Wellcom non-executive directors remarked Wayne Sidwell is Wayne Sidwell, nothing more need be said”. When James first met with Wayne, he immediately recognised the business had a very astute, experienced and engaged leader. Subsequent due diligence, including feedback from competitors, confirmed Wayne’s reputation as a fierce competitor but at the same time an honest and honourable man.


While WLL may only have a 10 year track record as a listed entity on the ASX and 15 years as an incorporated company, the history with the Sidwell family in the industry runs for over 8 decades. Wayne’s father Bill entered the industry in 1932 as an apprentice and eventually built up a family business. In 1968 Wayne joined the family business Show Ads / Omega as an apprentice. Fast forward to 1993, Show Ads/ Omega is floated on the ASX and becomes Shomega Limited. Shomega Limited was subsequently acquired by PMP Limited in 1996 where Wayne took over the role as CEO of the pre-press division. In 1999, Wayne resigned from PMP and started Wellcom a year later with 14 hand-selected employees. Incidentally out of the original staff, seven are still with the company in senior roles within the business.  In 2005 it was obvious to Wayne that the industry was changing and the business required substantial investment in technology and for future international growth. Hence, the business was floated to raise capital in the same year.

2016 overview from Wellcom group from 2015 AGM presentation
Before articulating the unique Wellcom business model, it is worthwhile adding a little background on the industry to provide context. Years ago, advertising agencies were a one stop shop for clients; they would come up with the ideas, produce and then place them (known as media buying). When media buying was taken out of agencies, they lost control over where and how their idea would be viewed by the consumer. The next big change is taking place right now and relates to the separation of production of the idea from the advertising agency, referred to as decoupling. Enter the few global businesses like WLL who at their core are more akin to technology companies with their sophisticated software programmes, which enable them to offer the full spectrum of services relating to creating, managing and distributing content at a lower cost with faster turnaround times than the traditional incumbents. WLL is at the forefront of disrupting the industry status quo.

Wellcom 3 year share price chart source: Commsec

Today WLL is a truly global company with around 500 staff and 750 clients, with offices and 50 odd Hub’s (internal graphic studios) operating in Australia, New Zealand, USA, UK, Singapore, Kuala Lumpur and Hong Kong. The Hub model is unique to WLL and contributes around 70% of the Group’s revenue. This service involves installation of WLL technology and the placement of staff in the client’s offices, providing a range of sticky services “on-site”. Importantly, they are also an essential marketing resource; new products and services can easily be marketed and deployed to the client managed facility.

As an investor, you feel like you have hit the jack pot when you find a small listed company that is largely misunderstood by the investor community with world leading products and services on the cusp of rapid international profit growth. In 2015, Australia and New Zealand contributed around 75% of Group earnings, with clients including the largest local banks and retailers. To give you an idea of the rapid international expansion, recent global business wins include BASF, UK Trade & Investment, Canon, Patek Philippe, Simon Malls and Tesco. WLL now has global expertise to manage any corporation’s brand management, brand consistency and communications delivery across the globe, including adapting content for local markets.

WLL’s partnership with BBH is worth individual attention. Bartle Bogle Hearty is a leading international advertising agency and have shared a partnership with WLL for many years. It began as a hub/studio in London and then extended into Singapore and New York. 2015 was a year of consolidation for the WLL London office (which was noticeable in the financial accounts) as considerable time, investment and resourcing was deployed in preparation for the on boarding of Tesco business. Tesco is the size of Woolworths and Coles combined. We believe the London office will be a significant contributor to the Group in future years and we expect continued rapid growth from the US and further expansion in Asia.

Wellcom campaign images
To conclude, we own a meaningful position in WLL, a small listed business that is a world leading global production company capable of offering around the clock services connecting industry leaders with customers. The Executive Chairman, Wayne Sidwell, has almost five decades of experience and remains as passionate about the industry as ever. We have a penchant for well-managed, risk adverse (especially when it comes to debt) listed companies generating good cash flow with a strong family business alignment and pedigree. Wayne controls ~ 50% of the company and, as recently as September 2015, increased his holding by acquiring more shares on market. In 2015 the international profit contribution to the Group was still small (especially in absolute terms); there is enormous potential for this company to grow in a large global profit pool from a low base.

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