Morningstar Market Strategist Lochlan Halloway recently highlighted the sustained gap between equal and market weighted valuations in our Aussie equity coverage. At the end of last quarter, there was a 3% discount to fair value on an equal-weighted basis across our coverage. Weighted by company size, the same coverage sits at a 10% premium. The largest names, bid up in a flight to safety, drive that valuation gap wider than at almost any point in the past decade.

This opens up the question if investors should be looking outside the top end of the market. The key for investors when looking outside the 100 largest companies in Australia as represented by the ASX100 index, is avoiding low quality companies with dried up earnings.

Picking quality businesses outside the top 100 provides a greater potential runway for share price growth. Let’s have a closer look at 3 shares that reside outside the ASX100 and still display quality through sustained competitive advantages over peers.

Pexa (ASX:PXA)

  • Fair Value Estimate: $10.50 (35% discount at 11 September)
  • Rating: ★★★★
  • Moat: Wide

Pexa is a property settlement exchange that dominates a monopoly in Australia. Pexa shares fell 17% in response to its reporting full-year EBITDA growth for continuing operations of 12% to $152 million. This was on a 7% increase in revenue and EBITDA margins expanding by 2 percentage points. Free cash flow was up 39%.

The company guided for a sharp deceleration in transfer volumes for fiscal 2027 of between 10% and 15%. The company is reluctant to change its operating expenses, resulting in the company expecting EBITDA of $130 million at the guidance midpoint, a 14% decline from last year.

We agree partially with the forecast. The housing market is coming off a period of elevated activity following the expansion of the 5% deposit scheme for first-time homebuyers. And changes to investment taxation and rising interest rates are hurting demand, especially from investors.

We were forecasting a 5% decline in volumes and are downgrading this to 8% in the near term. But we don’t think this sets a new transfer volume baseline. We expect a volume recovery to the prior baseline by fiscal 2030, reflecting a property correction of similar duration as we saw in New Zealand.

We maintain our fair value estimate of $10.50 for wide-moat Pexa. Shares screen as materially undervalued, hit by three negative narratives: a regulated fee decrease, lower transfer volumes, and a struggling UK business.

We think the risks from each are well captured in our model and valuation. We have incorporated the expected fee decrease. But we continue to expect minor concessions from the regulator, given the compelling case Pexa has put forward that its cost base is not calculated appropriately.

Pexa expects the sharp decline in transfer volumes it is guiding to will have to be incorporated by the regulator in its pricing decision.

Seek (ASX:SEK)

  • Fair Value Estimate: $25 (50% discount at 11 September)
  • Rating: ★★★★★
  • Moat: Narrow

Seek shares fell more than 15% as full-year EBITDA excluding share-based payments increased 15% to $530 million. An 18% increase in yield per ad across ANZ and Asia, slightly offset by lower volumes, drove the August result.

Seek guides for a material deceleration in revenue growth in fiscal 2027, just 5% at the midpoint. We expected an acceleration to 14%, a significant miss. We think guidance is mostly cyclically driven, lowering only near-term forecasts, and keeping our AI-driven tailwind thesis intact.

A cyclical decline in the number of job listings has historically led to lower yield growth, as employers can get sufficient qualified applicants without having to pay for their ads to stand out. We expect yield to cyclically recover and continue high single-digit growth from continuing efficiency improvements.

Seek’s guidance is in stark contrast with Indeed in the US, but we think the difference is temporary. Indeed is seeing strong hiring in high-paid roles with well-funded AI companies on a hiring spree, pushing up vacancies and wages. Meanwhile, Australia’s public sector hiring boom is cooling.

We maintain our $25 per share fair value estimate for narrow-moat Seek as the near-term weakness is not sufficiently material to drive a change. Shares screen as materially undervalued, reflecting fears of disruption from AI, which we think will in fact be a long-term benefit.

AI disruption fears are from fears of disintermediation of job boards, as well as structurally higher unemployment, and therefore lower listings. We think these impacts are minor over our explicit forecast period.

Employers are becoming overwhelmed by an onslaught of AI-written, low-quality job applications. We see Seek as uniquely positioned to use AI to become a more valuable matchmaker between employers and job seekers, something employers will likely pay for, enhancing pricing power.

SiteMinder (ASX:SDR)

  • Fair Value Estimate: $7.50 (63% discount at 11 September)
  • Rating: ★★★★★
  • Moat: Narrow

Shares fell nearly 15% with fiscal 2026 earnings. Annual recurring revenue rose 24% in constant currency, driven by a 15% increase in subscription ARR and a nearly 40% increase in transaction ARR.

Prior guidance for revenue growth to accelerate to 30% in the medium term is now withdrawn. Instead, revenue guidance now targets a CAGR of at least 20% through fiscal 2030, with adjusted EBITDA margins expanding to the mid-20s by then.

New guidance is a net negative. Although revenue growth is expected to be more durable than a once-off acceleration to 30%, and margins meaningfully wider, we think Siteminder is signaling growth deceleration.

We didn’t think revenue growth would reach 30% and expected growth to peak in the mid-20s. But we think it is appropriate to lower our revenue forecasts to reflect management’s softer expectations, to a 16% CAGR over our explicit 10-year forecast period, from 20% previously.

We lower our fair value estimate for narrow-moat SiteMinder by 32% to $7.50, reflecting increased friction to revenue growth. We also increase our Uncertainty Rating to Very High, from High, reflecting long-term uncertainty around artificial intelligence. However, shares screen as cheap.

We still think SiteMinder is a structural compounder. Revenue growth reaccelerated to 22% in constant currency this year, up from 19% a year earlier. Guidance is for revenue growth to be similar for the next four years.

We view the company’s lifetime value/customer acquisition costs ratio as the key metric to gauge its remaining reinvestment runway. At 6.6 times, this ratio remains very strong, at more than twice the industry’s benchmark for healthy growth, of 3 times.

SiteMinder remains the largest e-commerce software company in its category, at twice the size of the runners-up. This gives it a highly winnable market opportunity that remains large and largely untapped.

Wrap up

It is worth noting picking smaller cap companies comes with greater risks. To avoid businesses with dried up earnings and no runway for growth, we pin our focus on our moat ratings. The three companies discussed today are examples outside the ASX100 with moats and a potential runway for future earnings growth, although risks remain.

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