Australian Equities: Themes Observed in 2025
25 July 2025
Here our specialist Australian Equities investment partner, Northcape Capital, shares a number of themes they have observed across the market over the last year, as well as discussing key opportunities and risks as they position the portfolio.
This information has been prepared by Northcape Capital, the underlying investment manager for the Warakirri Concentrated Australian Equities Fund and Warakirri Ethical Australian Equities Fund.
Founder-led companies – Visionary or Vanity?
One notable theme in our market this year has been the corporate governance mishaps amongst high-profile executives in market darlings such as WiseTech and Mineral Resources. Neither company is on our Approved List due to longstanding governance concerns.
In October 2024, ASIC began investigating Mineral Resources and its founder, Chris Ellison, for tax evasion, misuse of company resources and inadequate disclosure of related party transactions. Apart from paying some personal penalties and donating to charity, he remains CEO of the company and no firm timeframe has been given on when (or who) will succeed him, despite ongoing ASIC investigations into his conduct.
In the case of WiseTech, founder and CEO Richard White faced allegations of inappropriate conduct in both professional and personal settings. After prevailing in a standoff with the independent directors, he continues to lead the company as Executive Chairman. The respective boards of WiseTech and Mineral Resources were quick to issue “nothing to see here” statements shortly after their scandals broke out and reassured shareholders that they were standing behind their CEOs, well before internal investigations had concluded. It is also interesting to note that in both cases, the Chairman and other board members took the brunt of the consequences, but the founder CEOs have remained in similar, if not more powerful, roles at their companies.
WiseTech Global founder and former CEO, Richard White
Source: Facebook – WiseTech Global
Contrast this to the actions taken at Qantas last year when it was under immense media and regulatory scrutiny. Mistakes were made, including the illegal sacking of baggage handlers during COVID and selling tickets for cancelled flights. Decisive and appropriate actions were subsequently taken, including:
- Publicly releasing details of a Governance review into Board effectiveness, culture and risk management.
- Expediting the replacement of the dominant CEO with an experienced, internal successor.
- Replacing the Chairman with a respected and experienced Chair, as well undertaking broader board renewal.
- Reducing executive remuneration and short-term incentives and forfeiting the former CEO’s long-term incentives.
Problems can arise at any company, but some are clearly better placed than others to deal with issues when they arise. This is what ultimately differentiates good corporate governance from bad.
We are not opposed to founder-led companies, but we are aware that this leadership model comes with additional risks, especially when one individual is key to the success of the company (“key-person risk”). As a company matures, there should be a natural transition in the governance model. In the early stages of a company’s life (often before it is a publicly listed company), a founder adds value through their bold vision and radical ambition and investors are willing to accept a high level of risk in exchange for the potential for high returns. However, as the business matures beyond the IPO stage, its base of investors tends to expand and the risk profile inherent in the business should evolve accordingly. If the founder retains the high-risk, high-reward mentality they started the company with, their natural instinct to protect and grow the company through any means necessary may come into conflict with shareholder protection mechanisms, such as acceptable corporate governance, capital allocation decisions and having an independent board.
At Northcape, strong corporate governance is a non-negotiable minimum standard for companies to be of sufficient quality to be considered investible.
M&A: Tales from Abroad
From Moscow to Melio
In the annals of history, few decisions have been as costly as Napoleon’s ill-fated invasion of Russia in 1812. Driven by ambition and a grand vision to control Europe, Napoleon committed vast resources to a campaign that eventually collapsed under the weight of poor planning, overreach, and a failure to respect the terrain. What began as an ambitious march to expand territory ultimately ended in retreat, ruin, and the erosion of his empire.
The lesson? Strategic overreach, even by the most capable leaders, can lead to catastrophic value destruction when vision is not tempered by pragmatism. In FY25, the Australian corporate landscape offered its own Napoleonic moments where the allure of offshore expansion led several companies into risky territory.
Xero’s ~US$3 billion acquisition of Melio exemplifies this theme. Melio, a payments platform with a small customer base and annual cash burn of ~US$150 million, was acquired ostensibly to accelerate Xero’s US growth and broaden their payments offering to small business customers. Yet Xero already served customers via a well- functioning partnership with Bill.com, the market leader. The decision to acquire Melio outright, rather than build internally or deepen the existing partnership, raises serious questions about capital discipline and strategic clarity.
Xero announces acquisition of Melio
Source: Xero
Melio’s business model is structurally inferior to Xero’s core accounting platform. Margins and pricing power are significantly lower, capital intensity higher, and revenues more transactional and volatile. Yet the valuation paid (~13x sales, ~70x gross profit) not only exceeds industry benchmarks but Xero’s own. The opportunity cost of this capital deployed is large, equivalent to more than a decade of capital expenditure that could have been redirected toward sales, marketing, or R&D to drive organic growth and product fit.
Instead, the company opted to pay a premium for a business with no clear competitive advantage and significantly weaker unit economics. For a business that has historically balanced top-line expansion with free cash flow discipline, this transaction marks a notable departure —one that risks compressing margins, draining capital, and muddying the path to sustainable value creation.
The US: One, Big, Beautiful Bet?
Xero wasn’t alone in chasing questionable deals in the US through the year, with several other companies trying their hand at the art of the deal. Wisetech made its largest acquisition ever — a ~US$2bn takeover of e2open, a company that itself is a rollup of 17 businesses, and yet was already in decline, with falling revenues driven by churn and patchwork R&D fixes. In addition to adding significant execution and integration risk at a time of internal leadership turmoil, it further strains strategic focus, carries channel conflict risks, and levers up their balance sheet at a time of volatility in their cyclical end markets.
James Hardie’s A$14 billion bid for AZEK follows a similar script of overreach. Priced aggressively and hinging on optimistic revenue synergies -often the hardest to realise -the deal diluted returns, introduced execution risks and materially increased gearing at a time when the US housing cycle is under pressure.
James Hardie factory (Sydney)
Source: Reuters – Tim Winborne
Woodside also couldn’t escape the allure of the US, investing in a marginal LNG project in Louisiana that lengthens their capex cycle, delays free cash flow generation, stretches their balance sheet and will likely only generate modest returns at best.
Home Advantage: Insuring Success
In contrast, IAG demonstrated that M&A can be a tool for value creation when executed with discipline and strategic clarity. IAG’s proposed acquisitions of RACQ and RAC WA were financially attractive, with motivated sellers and strong brand alignment. These deals complement their existing personal lines portfolios and leverage their historical strength in motor club partnerships. The integration plan is de-risked, synergies are achievable, and the strategic rationale compelling.
IAG’s motoring club partnerships in Australia
Source: IAG Enters Strategic Alliance with RAC Investor presentation
Conclusion
FY25 reminded us that M&A is not inherently value- creating. It is a tool – not a trophy – and must be wielded with care. As investors, we must remain vigilant because in M&A, as in war, the terrain matters – and not every march ends in victory.
For more information, please contact us on 1300 927 254 or visit Our Funds.
The information in this document is published by Warakirri Asset Management Limited ABN 33 057 529 370 (Warakirri) AFSL 246782 and issued by Northcape Capital ABN 53 106 390 247 AFSL 281767 (Northcape) representing the Northcape’s view on a number of economic and market topics as at the date of this report. Any economic and market forecasts presented herein is for informational purposes as at the date of this report. There can be no assurance the forecast can be achieved. Furthermore, the information in this publication should only be used as general information and should not be taken as personal financial, economic, legal, accounting, or tax advice or recommendation as it does not take into account an individual’s objectives, personal financial situation or needs. You should form your own opinion on the information, and whether the information is suitable for your (or your clients) individual needs and aims as an investor. While the information in this publication has been prepared with all reasonable care, Warakirri and Northcape do not accept any responsibility or liability for any errors, omissions or misstatements however caused.
