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Company Spotlight: Why AFIC invests in Macquarie Technology Group
Company Spotlight: Why AFIC invests in Macquarie Technology Group

Company Spotlight: Why AFIC invests in Macquarie Technology Group

AFIC focuses on investing in high-quality companies that provide shareholders with attractive returns over the long term. We identify high-quality companies based on multiple criteria and our experience. We recently added Macquarie Technology Group (ASX:MAQ) to the portfolio – here we explain why.

Our investment approach is to look for quality companies based on a strong leadership and management team, a healthy and conservative balance sheet that allows for reinvestment back into the business, a market leadership position and unique assets that are hard to replicate. Quality businesses also have the financial strength to ride market fluctuations, a sustainable business model, annuity-type income streams, and a plan for earnings growth.

We particularly like what we refer to as owner driver companies, businesses where the founder or founders have proven themselves to be great at running the business.

Based on our assessment of these criteria, we believe Macquarie Technology Group is a quality company with potential to deliver long-term value. We recently invested in the business.

MAQ is a data centre, cloud and telecommunications business focusing on enterprise, corporate and SMEs and the Australian Federal Government. As a founder-led business, MAQ has grown strategically over 30 years, funding their growth through the careful reinvestment of cashflows. It has grown over the decades as a challenger brand focusing on customer service and innovation.

The company continues to win market share in each of its segments and is well placed to benefit from increasing demand and industry tailwinds for data consumption and the need for secure data.

What does Macquarie Technology Group do

Macquarie Technology Group operates five data centres across Sydney and Canberra and have recently received development approval to extend their data centre capacity in Macquarie Park, which will be the first operational Australian data centre built with liquid cooling to accommodate AI focused workloads. This expansion will underpin their growth into the 2030s.

Their data centres are used by hyperscale cloud providers (Microsoft and Google) as well as enterprise customers and privately managed cloud for corporates and SMEs.

Additionally, MAQ has a government cloud division that provides data centre capacity, cybersecurity, and secure internet gateway services to the Federal Government. Few companies have the security level clearances and sovereignty required to manage Federal government work which is growing strongly.

Why is Macquarie Technology Group a sensible investment now

We have followed MAQ for several years through its ownership in other funds, however the relative illiquid nature of the shares prevented us from establishing a position.

Earlier this year, the company announced a capital raise of $100m to repurchase the land and buildings at their existing Macquarie Park facility. The land and buildings were previously sold and leased to Keppel REIT in Singapore. Bringing the land back on to the balance sheet makes sense from a sovereign viewpoint and allows for more flexibility in any future capital restructuring.

MAQ has always traded at a significant discount to its relevant peers in the data centre and cloud technology sector due to the liquidity issues with its shares. Greater liquidity now allows for broader share ownership outside of its founders. The recent capital raising allowed us to invest in a high-quality company at what we believe to be a fair price.

The Company has historically paid a dividend, but stopped during this period of heavy capital investment with an intention to resume a dividend in later years.

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