Interesting to compare the main points you make in this article with a business like ODFL:
- Has a strong competitive position in LTL with network effect barriers to entry
- Brand has excellent reputation and delivers a premium service, so business has pricing power
- Evidenced by average post-tax ROIC of 25% over past 8 years, and has compounded FCF/sh by 26%, even while LTL industry has been in recession since mid 2022
- Yet, this is a capital-intensive business, with capex averaging 16% over past 8 years. There are no intangibles and no goodwill (asset base is purely PPE).
Seems like there is a certain special class of asset intensive businesses where the asset base is a source of competitive advantage and growth reinvestment in that asset base continues to grow the moat over time...
Not as high quality a financial model as a FICO or credit bureau but an interesting counter-example to the thesis of looking at asset light businesses!
I think in most cases, the greatest examples of long term compounding are a result of those companies that can reinvest. This would be serial acquirers and companies like ODFL. Over less long time periods, the asset light businesses can be excellent. Pick your poison really.
Interesting to compare the main points you make in this article with a business like ODFL:
- Has a strong competitive position in LTL with network effect barriers to entry
- Brand has excellent reputation and delivers a premium service, so business has pricing power
- Evidenced by average post-tax ROIC of 25% over past 8 years, and has compounded FCF/sh by 26%, even while LTL industry has been in recession since mid 2022
- Yet, this is a capital-intensive business, with capex averaging 16% over past 8 years. There are no intangibles and no goodwill (asset base is purely PPE).
Seems like there is a certain special class of asset intensive businesses where the asset base is a source of competitive advantage and growth reinvestment in that asset base continues to grow the moat over time...
Not as high quality a financial model as a FICO or credit bureau but an interesting counter-example to the thesis of looking at asset light businesses!
I think in most cases, the greatest examples of long term compounding are a result of those companies that can reinvest. This would be serial acquirers and companies like ODFL. Over less long time periods, the asset light businesses can be excellent. Pick your poison really.