I bought shares in data analytics group Veda Group Ltd (ASX: VED) roughly one month ago when they were trading hands at $2.09. At that stage, the shares had tumbled more than 18% since peaking in March and I didn't want to miss my opportunity to buy at such a discounted price.
Sure enough, the shares fell even further after that. In fact, at one stage I was looking at a 12.2% decline on my initial investment!
But the truth is, it really didn't bother me. While a part of me wishes I waited and bought in when they hit their low of $1.83, I still knew I'd paid a very decent price for such a high quality business.
There are a number of things that I find very attractive about Veda Group. To begin with, it is operating as a monopoly in the credit information provision market with approximately 85% market share. In its 46-year history, it has built up records on 20 million people and 5.7 million businesses, which is one of the reasons the country's major banks and major telecommunications companies utilise its services.
Another key point that makes Veda Group so attractive is its incredibly strong history for increasing revenues and earnings. In fact, it has grown revenues every single year since FY1993, and if that wasn't enough, it has grown at a compound annual growth rate of 14.6%. EBITDA has also grown at a compound annual growth rate of 17.3% over the last three years.
Veda Group's defensive nature has been one of the driving factors behind its superb results. When the economy experiences turbulence (as it did during the Global Financial Crisis), companies become much more concerned with the strength of their balance sheets. Therefore, they take extra precautions to ensure the customers they extend credit to are highly likely to repay their debts. As you might have guessed by now, Veda's revenue actually grew strongly during this period of economic turmoil.
In terms of future growth, Veda should benefit from the introduction of Comprehensive Credit reporting. Essentially, this regime, which came into effect this year, allows credit bureaus like Veda to collect a much broader range of data which can then also be acquired by creditors. While it will be costly to build up this additional data, the returns for Veda should also be very nice.
Another high quality ASX stock – FREE!
While Veda is still trading on a projected P/E ratio of roughly 24, it is by no means a "bargain" buy. However, given the quality of the business and its growth potential, $2.09 was a price I was definitely willing to pay. And with the stock now trading at just $2.00, I will highly likely add to my stake in the near future.
