Escape from Albo-Traz

– David Wanis, May 2026

Productivity growth is the lifeblood of markets and long-term economic growth, and in Australia as we discussed a few months ago, the trends are going the wrong way. We usually steer well clear of macro and politics, but none of the changes proposed in the recent budget is going to reverse this in a hurry. The government may be trying to manage a range of economic and social outcomes with these policies, but as it relates to productivity it will make things worse.

Source: UBS

Australian Small Caps are often thought of as a proxy for the domestic economy, and as such most captive to broad economic influences. This might be true in aggregate, but we also have at least three offsetting advantages: i) small caps can operate in niches which are either new industries or gaining market share, tailwinds to more than offset broad economic conditions, ii) many companies outside the Top 50 have global exposure which gives shareholders access to markets with much greater economic growth and productivity than Australia, and iii) rapid advances in technology (AI) are allowing strong management teams the ability to improve productivity inside their own operations. We discussed this last point in the productivity discussion a few months ago, and we will get updates from small caps across the market on progress here in August.

This month we wanted to explore the exposure to global markets within our portfolio. Given we already disclose top 10 portfolio holdings, we thought that it would be a useful place to start.

Breville (BRG): Overwhelmingly global in revenue exposure, with over 80% of sales generated outside Australia. Offshore growth was broadly in line with group revenue growth at ~11%. The Breville growth profile is far more tied to global premium coffee and kitchen appliance penetration than to Australia’s domestic economy.

Beach Energy (BPT): Beach Energy operates Australian assets, but its revenue exposure is more globally linked than its asset base suggests. Around half of sales revenue is tied to export or global commodity pricing through LNG, oil and gas liquids, including Waitsia LNG cargoes, while the remaining half is largely sold into Australian markets. Beach’s growth profile is increasingly influenced by global LNG and oil pricing alongside domestic Australian gas demand, rather than being purely tied to Australia’s broader economic cycle. The volumes and price caps to the Australian market are however politically exposed.

Capstone Copper (CSC): Capstone Copper is ASX-listed but has effectively no Australian operations, with its copper mines located in the Americas across Chile, the United States, and Mexico. 100% of FY25 revenue was generated outside Australia, with offshore revenue rising c.48% year-on-year to US$2.36bn, supported by a 22% increase in copper production and the ramp-up of key Chilean assets. This leaves Capstone’s growth profile almost entirely tied to global copper demand, electrification, grid investment, data-centre power requirements, and organic growth projects such as Mantoverde Optimized and Santo Domingo.

Codan (CDA): Almost entirely global in revenue exposure, with around 95% of sales generated outside Australia. This offshore revenue grew ~25% in FY25 versus only ~5% growth in Australia, with the key drivers coming from global defence communications, unmanned systems, and Minelab’s African gold detector demand. Codan’s growth profile is far more tied to international security, defence and resource-end-market demand.

Imdex (IMD): Approximately 75% of revenue generated outside Australia. Offshore revenue is growing around 22% year-on-year, led by 27% growth in the Americas, while APAC grew 28%, highlighting that the current recovery is broad-based rather than purely offshore-led. IMDEX’s growth profile remains far more tied to global mining technology demand, exploration activity, critical minerals, gold and copper investment, and productivity-led adoption of sensors, drilling optimization, and digital field solutions.

Megaport (MP1): Around 85% of FY25 revenue was generated outside Australia and the US alone contributed 55% of group sales. On a pro-forma run-rate basis, however, the offshore skew increases materially when we include a full year of Latitude.sh and the recently announced US-based compute, GPU, network, and storage contract wins.  Non-Australian revenue exposure increases to around 90% and shifts Megaport’s growth profile further away from Australia’s domestic economy and toward global cloud, AI infrastructure, data-centre, and enterprise connectivity demand.

New Hope (NHC): New Hope has all assets located domestically, but its earnings exposure is almost entirely tied to export coal markets rather than domestic Australian demand. Around 90% of coal revenue was generated from offshore or globally price-linked customers, led by Japan, China, and Taiwan, with less than 10% sold to Australian customers, and this could reduce further over time if the grid decarbonizes over the next decade. New Hope’s growth is far more sensitive to Asian seaborne thermal coal demand, Newcastle benchmark pricing, Japanese and Taiwanese power generation demand, and China’s import appetite.

Newscorp (NWS): Approximately 75% of revenue generated outside Australia after consolidating its controlling interest in REA Group. Excluding REA on a geographic look-through basis, the offshore skew increases to roughly 85%, dominated by Dow Jones, HarperCollins, News UK, Realtor.com, and other international assets. News Corp revenue is increasingly tied to global digital subscriptions, professional information services, book publishing, U.S. real estate portals, and international news media, rather than Australia’s domestic economy alone.

Sims Group (SGM): Sims is Australian-listed but its shareholder exposure remains overwhelmingly global, particularly once its 50% interest in US-based SA Recycling is included. Approximately 80% of economic operating revenue exposure was generated outside ANZ, with pro-rata offshore revenue growing ~8% year-on-year, supported by SA Recycling and strong growth in Sims Lifecycle Services (+70%), while ANZ Metal revenue grew ~10% on higher non-ferrous prices despite softer proprietary sales volumes. This leaves Sims’ growth profile far more tied to North American recycled metals demand, US steel and aluminium reshoring, hyperscaler-driven IT asset reuse, circular technology infrastructure, and global scrap-cycle dynamics.

There are portfolio holdings outside the top 10 which also have significant offshore exposures like Reece (60%) and Reliance Worldwide (75%), Mainfreight (50%), Nanosonics (95%), and Austal (75%), as well as mining and mining service companies who like Capstone and New Hope have more exposure to global than domestic growth.

Of course, the portfolio does have meaningful exposure to the domestic economy. We actively seek companies with clear competitive advantages that provide them pricing power, management teams focused on the productivity and growth challenges, and niches in the economy with structural tailwinds to offset the cyclical headwinds to both revenue and costs.

Source: UBS

We don’t think being a domestic large cap investor in Albo-traz is an easy solution. A significant percentage of the ASX Top 50 largely represents the domestic economy. The big 4 banks, Woolworths, Coles & Wesfarmers, the Real Estate sector, Telstra, IAG / Suncorp, Medibank. To make matters worse, some of the large cap global growth champions – like CSL, Cochlear, ResMed, Wisetech, Xero – have had their own difficulties and means skewing to global growth through ASX listed large caps has not been an easy alternative. The big global miners are carrying a lot of water for large cap investors.