Why SWM will deliver multi-bagger returns by September 2025
(b) SWMs new competitive advantages are completely missed by the market.
Investors love winners like Macquarie Bank, CSL, Xero (or any other blue chip you can think of that has stood the test of time). What is it that makes these companies win?
To answer this question Warren Buffett often uses the term ‘economic moat’ to describe the competitive advantages a business has over others in order to protect its long-term profits and market share. A good business has a wide moat to protect itself against competitors. The hidden masterstroke is that SWM has already fought hard to establish some of the widest moats possible in this new digital world.
Let’s take a step inside the new competitive advantages of the SWM digital business
Imagine for a second that Cadbury chocolate managed to convince the Australian Government to introduce a law requiring Cadbury to be sold at all stores nationwide and furthermore that its product had to be displayed prominently at eye level of each chocolate display without Cadbury having to pay for this privilege.
• If you were an investor in Cadbury would you expect that this change would result in more sales of Cadbury instead of your competitors products?
• Would the competitive position of Cadbury be strengthened by this legislative change?
My personal thoughts are that this would act as a total gamechanger for the economic moat of Cadbury and that Cadbury would experience a significant growth in sales and profitability due to this display change. Not only would Cadbury no longer have to pay stores to maintain its display prominence but it would also ensure that when a consumer was looking for chocolate it would be presented with Cadbury as one of the first options available to them. I would reasonably assume that the market share of Cadbury would increase because of this.
In the case of SWM this Cadbury example is what 7plus has managed to achieve in the digital streaming business. This sort of game changing product prominence for 7plus is now a reality thanks to the Broadcasting Services (Minimum Prominence Requirements) Regulation 2024 which commenced as of the 17 December 2024.
This new regulation amongst other things
• ensures that the BVOD applications that provide access to local free-to-air television services are installed on the device and are able to be updated; • requires BVOD applications to be visible on the primary user interface (including the home screen) of the device without a user having to take any other action; and • provides that the BVOD applications are of a similar size and shape as those for subscription television services and international streaming services. • Under the regulations, manufacturers will be prohibited from supplying non-compliant devices in Australia meaning that every single television sold must ensure prominence of 7plus and other Free to Air BVOD applications (9now, 10play, SBS on demand, ABC iView) .
The predictable effect of this for 7plus is increased growth in audience numbers and minutes consumed on our digital platform. During 2025 the market will begin to realise what a massive competitive advantage this prominence legislation is for SWM.
‘The beauty of stocks is that they do sell at silly prices from time to time. That’s how Charlie and I have gotten rich’Warren Buffett
• Right now the market is pricing SWM at absolutely silly prices.
• SWM is currently priced at less than 3x current cyclical low earnings, at mid cycle earnings it is less than 1.5x earnings!
By September 2025 SWM will have delivered multi-bagger returns from this extremely low price.
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SWM Price at posting:
14.5¢ Sentiment: Buy Disclosure: Held
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