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Urbem's 'Quality Strategy' Series: The White Space

A valuable source of organic growth

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Steven Chen
Apr 01, 2020
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With respect to corporate strategy, the term “white space” is both ubiquitous and ambiguous. Various interpretations exist - e.g., a new market, a growth engine or a business opportunity. 

When it comes to stock picking, we at Urbem would simply define the white space as the untapped geographies or populations that offer room for long-term growth to a particular product or service of a business.

In our opinion, investors should favor well-moated, consistently high-return companies embracing a huge but under-recognized white space. The expansion of such businesses is usually organic, predictable and value-generative, being less prone to the competitive and acquisition risks or so-called “growth trap,” where growth is generated at the expense of diminishing returns. Additionally, investors may want to make sure the product or service is well “travelable.” Think about See’s Candies vs. Coca Cola (

KO, Financial) during their early days. Lastly, it widens the margin of safety to bet on global market leaders in a concentrated industry.

Our favorite “white space” domain is the payment industry, where more than 80% of total transactions worldwide are still in the form of cash today. The “war on cash” is providing a sizable runway for market leaders Visa (

V, Financial) and MasterCard (MA, Financial), which, in aggregate, have been dominating over 80% of the penetrated market based on the number of cards in circulation.

According to the chart below, both companies delivered super-normal returns on assets over the past decade.


At the same time, Visa and MasterCard increased their annual free cash flow nearly five-fold and six-fold, respectively (see below).


In light of the multi-layered economic moat through brands, scale, network and barrier of entry, it is reasonable to believe that the highly-efficient shareholder value creation at both companies should last for the years to come.

Toothbrush/toothpaste is another “white space” story, which appears less exciting but is more under-rated compared with payment technology. Who can enthusiastically imagine the growth potential of century-old Colgate (

CL, Financial) without recognizing that two-thirds of the world’s populations do not brush their teeth on a daily basis? The New York-based FMCG (Fast Moving Consumer Goods) giant generates roughly half of its total revenue through oral care products sold in more than 200 countries worldwide. Although being the world’s most penetrated brand (even leading Coca Cola, Dove, Lay’s and Nestle), Colgate is just not logically penetrative enough, if you believe that more than half of the global population may change their daily habits sooner or later for better dental health.

As displayed in the chart below, Colgate-Palmolive earned a return of over 10% on assets every year for the last decade. We believe that the strong brand and scale advantage should continue to help the business fend off competitions in the dynamic FMCG market.


Disclosure: The mention of any security in this article does not constitute an investment recommendation. Investors should always conduct careful analysis themselves or consult with their investment advisors before acting in the stock market. We own shares of MasterCard.

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