In the March 2024 quarter, we strategically added new positions to our portfolio, including Sage Group, Airbnb, and Paycom. We believe the Polen Capital Global Growth Fund’s valuation is currently fair for what we consider to be a collection of some of the best companies in the world.

Sage Group

Sage Group is an accounting and financial software provider focused on small-medium businesses (SMBs). We’ve covered Sage for many years, and it is a large and long-time holding in Polen’s International Growth portfolio. Sage occupies a leading position as a scaled provider of mission-critical software for SMB customers across Europe and North America. We have been impressed with management’s ability to transition the business to the cloud and re-focus its efforts on the core business through the divestiture of non-core segments with the proceeds reinvested into research and development (R&D). This has driven accelerating revenue growth, improving margins, and highly recurring revenue, and we think the business continues to have a long runway ahead of sustainable mid-teens earnings growth.

Airbnb

Airbnb is a great business model, according to our research, due to its two-sided global network effects. For several reasons, Airbnb has a better mousetrap with its supply growth engine, with its hosts having a far lower cost of capital and more flexibility than hotels. We think private rentals should continue to grow their share of overall accommodation stays, potentially up to 30 per cent of lodging or higher over the long term, letting the private rental gross booking value grow at a low double-digit rate. We also think Airbnb should continue to gain share within the private rental market as its global network effects strengthen, allowing for mid- teens revenue growth. With flat to rising margins over time, significant free cash flow generation, and a management team that has demonstrated its owner orientation, this should result in high-teens earnings per share (EPS) growth over time. While the path there will not be linear, and it is a more discretionary spending-tied business, we think the long-term secular growth opportunity is very compelling.

Paycom

Paycom is a leading cloud-native payroll and human capital management (HCM) software provider. We think it’s a well-run, high-quality business operating in an excellent sector with many winners. We know the payroll and human capital management (HCM) software sector well, having owned ADP for many years and, more recently, Workday. While a recent go-to-market chaos with their new Beti product and some macro weakness has led to a deceleration in their near-term growth, we think the long-term picture remains – it is a leader in an attractive industry, providing mission-critical software with highly recurring revenue, 90 per cent+ retention rates, and high returns on capital. We think Paycom has a leading product and should be able to continue to grow faster than the market and succeed in moving up-market. It has gained market share since its founding in 1998 and initial public offering (IPO) in 2014, and we expect this to continue after the short-term clouds dissipate. We believe it will return to a normalised long-term revenue growth rate in the mid-teens or better over time and that the valuation reflects near-term concerns, presenting a positive risk-reward.

The Polen Capital Global Growth Fund own shares in Sage Group, Airbnb and Paycom. This article was prepared 22 April 2024 with the information we have today, and our view may change. It does not constitute formal advice or professional investment advice. If you wish to trade Sage Group, Airbnb or Paycom, you should seek financial advice.