Company Interview / A soft spot for this niche US stock

Discussing Roper Technologies, Jonathan Nurick from DivGro expresses his fondness for the company due to its unique software business approach. Roper, originally an industrial conglomerate, has now transitioned into a powerful entity in the field of niche yet critical business software. Jonathan nods to the company's strategy of not eyeing big markets that draw large competition, but seeking out specific smaller spaces to achieve significant profitability. This approach has allowed Roper to gain domain-majority and create a barrier for novice businesses scouting for entry.

Highlighting another of Roper's successes, the ownership of Assurant, Jonathan remarks that out of the 200 largest law firms in the United States, 194 use their software - an impressive retention rate since acquiring Assurant in 2015. He depicts a strong, illustrative picture of Roper's modus operandi; staying close to the customer, and expanding sales reaching approximately $200 million. Jonathan also shares insight on the many businesses that assemble under Roper’s umbrella, like the leading provider of software for toll roads, emphasising their resistance to existential risk.

Focusing on dividends, Jonathan appreciates Roper for its stability, especially regarding its annual growth since announcing their first dividend in 1992. Disregarding the low yields, he commends Roper's consecutive growth at a rate of 40.5% per year for 31 years. He is particularly impressed by Roper's ability to retain its economic steadiness, even amidst market volatility. Additionally, commenting on the Nasdaq's condition, Jonathan still sights a silver lining for Roper investors due to its unwavering hold on the industry's fundamentals. Wholly, Jonathan sees Roper Technologies as a robust investment opportunity teeming with potential growth.

Full unedited transcript:

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Let's get now stock specific a focus on announced and listed stock Roper Technologies Jonathan Newark from Dive Guru joining me to discuss why he likes this particular stock. I mean, the Nasdaq has been pummeled the last couple of sessions. But you see value in this one. Yeah. Look, we like Roper a lot. Um, Roper's timely because just last week we wrote to our investors that were celebrating our fifth anniversary since opening the fund. Um, which for us is sort of the first milestone in Roper, a company we held since inception. So it makes sense to what is it, discuss it. Roper was once upon a time, an industrial conglomerate that moved into a conglomerate of niche, dominant software businesses. Most people think about software businesses as the biggest term, the biggest addressable market. They can conquer it and grow into an enormous space. And Roper is interesting. It takes a slightly different approach. They say we can deliver extreme profitability if

0:59

we go after fairly narrow but very mission critical. Typically business software niches where the market is not that big, that it attracts big dollars from big players, but it's big enough that once you take the majority share, there are enough fixed costs and enough customer intimacy and enough being mission critical for the company that it's actually very, very hard for another upstart to come in. So Roper owns the leading provider of software to large law firms. For example, they own Assurant, which in the United States, out of the 200 largest law firms, they have 194, and since their ownership of odorant in 2015, they haven't lost a client to a competitor.

1:48

That's a pretty strong story. While they add modules and they add price and they get closer to the customer and they're able to expand this. So other and sales today are about $200 million. It is a substantial business growing double digits, but it is not so interesting for another large technology company to come and chase errant out of its marketplace. And today, Roper has assembled a few dozen of these companies, adamant being an example how, for example, the leading provider of software for toll roads. These are things that don't go away. They don't have much existential risk. They're not an exciting areas, but what they allow, coming back to how we wrote our investors is these are incredibly predictable, very high quality businesses. They allow Roper to increase their sales and increase their earnings very predictably. Yeah. As a result, they can grow their dividend every year. Roe became public in 1992, declared their first dividend, and has

2:48

increased that every single year, with that exception through to today. And the share price, which is what we believe follows the trajectory of the dividend. So what's the what's the dividend yield or what are you seeing in terms of the dividend yield is not going to be interesting to most people who are chasing yield. These are low yield companies that are growing their dividend very fast as an example. Since coming public, Roper has grown its dividend at 40.5% per year

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for 31 years. That's a very impressive track record. Um,

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everything that we do suggest that can definitely continue. And what we contend is where the share price, the share price will follow the dividend over time. But more importantly, if you chart Roper's dividend or any company like Roper, you can see that every year they increase their dividend up and to the right at about 14% a year. The share price has followed, but it has been a more difficult journey. You can see lots of ups and downs, sometimes fairly vicious, like you can see now right in what's going on in the market. You look at what's happening in markets now, particularly what's happened on the Nasdaq then. Is that where you see buying opportunity or you run? I think people who are invested in Roper generally appreciate that. It is made up of many businesses. They tend to be extremely sticky. The businesses that rely on Roper software, it's going to be the last cost that they get rid of before they shut down because so integral to the business. But

4:23

when we when we see the market stumble, where people are worried about something that isn't necessarily connected to the fundamentals of this company, for us that's an opportunity to add.