Fairlight Asset Management: A Fund That Focuses on AI-Related Companies
Fairlight Asset Management, an investment fund, has achieved strong returns by investing in companies involved in artificial intelligence (AI). Nick Cregan, who manages the fund, selects companies that can benefit from AI or are well-prepared for its impact. Instead of trying to predict the ultimate winner in AI, they focus on adaptable companies. This belief has propelled his Fairlight Global Small & Mid Cap fund to a 24% increase over the past year, outperforming 97% of its peers.
Fairlight’s top investments include Scout24 SE, Copart, Inc., and Nordson Corp. They expect Nordson Corp to benefit from the rising demand for microchips. Since its launch, the fund has performed well due to attractive valuations in small and mid-cap stocks. Cregan believes these stocks are currently inexpensive and is actively seeking opportunities in the UK and Germany.
Scout24 SE
Scout24 SE, an online marketplace in Germany, had a strong Q1 2023, with group revenues up 13.0% to EUR 121.9 million. The core business, including agents, Plus products, and individual listings, showed consistent growth. However, demand for seller and mortgage leads remained low. The ordinary operating EBITDA exceeded revenue growth, increasing by 16.3% to EUR 68.2 million. Adjusted earnings per share rose by 27.3% to EUR 0.56. The company maintained its guidance for 2023, expecting 12% revenue growth and 13% ordinary operating EBITDA growth. RBC recommended buying Scout24 SE stock with an unchanged target price of EUR 79.
Copart, Inc.
In their Q1 2023 investor letter, Conestoga Capital Advisors highlighted Copart, Inc., an online auction and vehicle remarketing services company based in Dallas, Texas. Copart has provided investors with a return of 64.74% in the past year, with shares gaining 50.62% in the last 52 weeks. With a market capitalization of $41.67 billion, Copart is a leading provider of salvage auctions in the US, Canada, and the UK. Despite the pandemic impacting unit volumes, the company saw an improvement in total loss rate in the fourth quarter, reaching 19.7% compared to 17.4% in the prior quarter and 19.2% in Q1 2022.
Nordson Corp
Nordson is a company that sells adhesive application systems used in various industries. While it may not be the most exciting business, what makes it appealing is its consistent history of increasing dividends since 1964. With a low payout ratio of 0.27, there’s potential for future dividend growth. Nordson joined the dividend aristocrats in 2022, showcasing its reliability as a provider of steady returns. Over the past 10 years, it has delivered an annual return of 12.79%, tripling investors’ capital. With strong margins and a solid track record, Nordson offers profitability and attractive returns to investors.
The Breakthrough That Sparked the AI Revolution
The current hot trend in technology is artificial intelligence (AI). Previously, AI was mostly associated with futuristic concepts, but until 2022, it lacked captivating consumer applications. However, the release of ChatGPT, a conversational assistant trained on vast amounts of data, changed the game. ChatGPT garnered immense attention, with tech and non-tech publications raving about its human-like responses. The hype surrounding AI often goes beyond reason, with suggestions that professionals like lawyers might need to change careers due to the capabilities of virtual assistants. The global generative AI market is projected to grow at a CAGR of 35.6% from 2023 to 2030, with a value of USD 10.14 billion in 2022. The demand for generative AI is fueled by technologies such as super-resolution and text-to-image conversion, as well as the need to modernize workflows across industries. AI advancements have caught the interest of investors, particularly after being discussed in 1Q 2023 earnings calls. Sectors like information technology, communication services, and consumer discretionary have shown notable outperformance and have had significant discussions about AI.
