THE AUSTRALIAN, TUESDAY, DECEMBER 2, 2014theaustralian.com.au/wealth 27

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THE National Rugby League isone of the world’s few majorsporting competitions to enforcea salary cap despite the presenceof competing leagues in othercountries where no such cap isevident.

While average annual playersalaries are about one-tenth thelevel of uncapped European soc-cer tournaments, the NRL caphas successfully balanced theleague’s competitive dynamic.

During the past 15 seasons, 10different NRL clubs haveemerged as grand final victors.By comparison, spoils of the un-capped English Premier Leaguehave been focused among justfour clubs, while Germany’sBundesliga has a group of five.The impetus within Australiansport to drive success throughmeans other than player salarieshas fuelled the coming listing ofCatapult Group.

The technology companywas conceived on the back of re-search collaboration betweenthe Commonwealth Co-opera-tive Research Centre for micro-technology and the AustralianInstitute of Sport.

It now controls an intellectualproperty portfolio surroundingthe utilisation of inertial sensors(for human movement analysis)and GPS technology for trackingathletes.

A suite of hardware and soft-ware products have subsequent-ly been developed for elitesporting organisations designedto appraise fitness and skill lev-els, training responses, tacticalperformance, injury risk, and re-habilitation.

With CAT servicing mem-bers of the AFL, NRL, SuperRugby, NFL and NBA, its com-ing float is designed to expand itsnorthern hemisphere presence.

Marketing is scheduled tofocus on the company’s subscrip-tion-based products, which werelaunched in 2012 and have seen adoubling in users over the pastyear.

Proceeds from the float arebudgeted to support a doublingin Catapult Group’s NorthAmerican sales force. However,new investors should considerongoing funding risks.

While the company has es-tablished a dominant marketshare in Australia’s elite sportinglandscape, it remains reliant onexternal capital.

There is no guarantee it willachieve the required scale to be-come self-funding. However,with a significant proportion ofsales already derived offshore,the risk profile appears accept-able for speculative investors.

Tim Morris is an analyst at wise-owl.com.

Tracking sports’ desire for success

TIM MORRIS

FLOATWATCH

Catapult International Group

ASX CODE: CATSHARES ON OFFER: 21.82 millionLISTING PRICE: 55cMARKET CAPITALISATION: $66 millionLISTING DATE: December 15

Clicking on opportunities in the ‘internet of things’

WHAT is “the internet ofthings’’?

By most definitions it’s embed-ding sensors into machines andother physical objects to bringthem into the connected world.Surprisingly the term is not newbut was coined by British techno-logy pioneer Kevin Ashton in1999 in an article for the RFID(Radio Frequency IdentificationDevice) Journal.

In 2000, LG introduced a re-frigerator that could be connectedto the internet but it didn’t catchon. Despite advances in RFIDtechnology, the concept didn’t re-ally develop until recently withthe advent of the smartphone andits “always on” connectivity. Nowyour fridge can send you a textsaying “We’re out of milk”!

The McKinsey Global Insti-tute, in its influential report “Dis-ruptive technologies: Advancesthat will transform life, business,and the global economy” puts apotential economic impact of be-tween $US2.7 trillion and $US6.2trillion ($7.3 trillion) per annumby 2025 as up to 1 trillion devicesare connected by the public sectorand by businesses involved inmanufacturing, health care andmining.

Practical applications in every-day life are endless. Our cars canbe connected and in our cities,

sensors could provide smart park-ing, monitor the health of infra-structure (bridges, overpassesetc), measure sound levels, andmake our roads “smarter” aidingtraffic flow.

In the countryside, sensorscould help detect forest fires, mea-sure air pollution, flood levels etc.Utility infrastructure would ben-efit from smart grids, measure-ment of water flow, detection ofhazardous materials and danger-ous radiation levels.

One of the most beneficial ap-plications would be in healthcare.

Having the ability to monitorpatients with chronic illnesses,doctors and nurses could monitorvital signs in real time, detect anyproblematic symptoms and ad-vise patients what to do.

Remote monitoring could re-duce hospitalisation and the highcosts of treating chronic diseases.Roughly 60 per cent of overallhealth care costs is related tochronic disease.

In manufacturing, the adop-tion of the Internet Of Things(IoT) could raise productivity lev-els by measuring equipment sta-tus and reducing downtime.Trucks and pallets could betracked, logistics improved andinventory flow managed better.Objects on assembly lines couldbe more efficiently placed.

For investors that want to par-

ticipate in the IoT, the best strat-egy, in my opinion, is to firstidentify the pure plays, companiesthat are directly involved in thedesign and manufacturing (eitherat the component stage or fin-ished product) of the sensors anddevices that will be deployed ingreat numbers then work out whowill manage the large and diversenetworks that will be created.

Here are three potential candi-dates for investors keen to play inthe IoT space:

• Sierra Wireless (market cap$US1.2bn). Sierra Wireless is theglobal leader in the embeddedmodular market for machine tomachine (M2M) cellular devices.

The M2M market continues toexpand.

In 2013 there were approxi-mately 300 million embeddedconnected devices and that mar-ket is expected to grow to 1 billionby 2020.

Sierra Wireless is a major play-er in this market. It is the industryleader with 34 per cent of the em-bedded module market.

Their largest product line, Air-Prime embedded wireless mod-ules, is driving this growth.

These devices are used in auto-motive, energy, sales and pay-ments and mobile networking.

The company’s products fea-ture cellular 3G and 4G connec-tivity solutions operating in over

80 networks globally. Theirmajor clients include Cisco(with whom they have a closerelationship), General Electric,Renault, Honeywell, Harman,Dell, Itron, Phillips and manymore.

In their recent earnings re-lease their largest division,OEM solutions or AirPrimeembedded products reportedrevenue of $127 million, up 29.7per cent year over year withgross margins improving to 29per cent. The growth is there.

Recently the company hashad numerous OEM designwins in energy, insurance, mo-bile computing verticals andalso with car manufacturers inNorth America, Europe andAsia.

• NXP Semiconductor (mar-ket cap $US18bn)

NXP Semiconductors pro-vides mixed signal and standardproduct solutions based on itsRF, analog, power manage-ment, interface, security anddigital processing expertise.These semiconductors are usedin a wide range of “smart” auto-motive, identification, wirelessinfrastructure, lighting, indus-trial, mobile, consumer andcomputing applications.

Based in Eindhoven, Nether-lands, the company has approx-imately 24,000 employeesworking in more than 25 coun-tries. NXP reported sales of$US4.8bn in 2013.

NXP is the co-inventor ofnear-field communication(NFC) technology along withSony and supplies NFC chip setswhich enable mobile phones tobe used to pay for goods, andstore and exchange data se-curely. Security will be para-mount in these connectednetworks.

• Silicon Laboratories (mar-ket cap $US1.9 bn)

Silicon Laboratories is a

mixed signal fabless semiconduc-tor company based in Austin,Texas. Fabless means it outsour-ces the fabrication of silicon wa-fers.

It has a broadbased IoT ex-posure through its microcontrol-lers, sensors, wireless productsand embedded software.

Management continues to be-lieve that IoT will have a trans-formative and disruptive impacton the industry.

They posit that IoT is reallyjust an extension of our connec-ted world as we transit from net-worked PCs to mobilesmartphones and finally to an in-telligent network of low powereddevices. 15 per cent of SLAB’s 2013revenue was attributable to IoTand it is expected to expand toaround 20 per cent of revenue in2014.

In terms of units, the companyhas targeted that IoT will growfrom two billion units in 2014 toeight billion units in 2017.

Clay Carter is the global equities expert at Eureka Report

A good strategy is to identify the key players in the space

CLAY CARTER

AFP

In the countryside, sensors could help monitor flood levels, detect forest fires and measure air pollution

Got A Query? Go to ‘ Your Questions’ atwww.theaustralian.com.au/business/wealthAndrew Heaven, The Coach, will answer your wealth questions.

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Rethink your tactics with low rates in prospect

WORLDWIDE, there’s an excess ofsaving, monetary policy remainsaccommodating and inflation isnegligible; in some countries, thedominant fear is of deflation. Mean-while our economy is in a soft patch.It’s no surprise that interest rateshere and abroad are expected to staylow relative to their long-term aver-age levels for some time yet.

As shown last week in this col-umn, investors may also need toallow for changes in the term struc-ture of Australian interest rates in2015. Expectations are for our cashrate to be left unchanged next yearbut if there is a move it’s more likelyto be a cut than an increase, whileyields on 10-year bonds could rise onthe back of higher US rates.

How might Australian investorsreact? One obvious need is to get thebest possible returns on cash andterm deposits. Banks seeking to at-tract deposits generally offer moreattractive rates on “honeymoon”deals, then later propose quite ordi-nary rates when funds are to berolled over. Individual investorsneed to shop around, drawing on in-formation from websites on interestrates available on bank deposits, andto negotiate directly with their bankor banks.

There’s been a shift of retail sav-ings from bank deposits into “hy-brid” securities issued by banks.Hybrids have features of both debtand equities. They currently offer in-come streams about double thoseavailable on bank deposits but theydon’t carry the government guaran-tee that applies on bank deposits.And, in the event of a serious finan-cial crisis, some hybrids could be re-classified as equities, perhaps withinvestors receiving shares worth lessthan the hybrid’s face value.

Investors have also been movingout of bank deposits to interest-bearing assets offering better returnsbut with higher risk, such as corpor-ate bonds. Investors should be awarethat “spreads” on bonds from differ-ent issuers have narrowed markedly

recently and could quickly widenagain, particularly disadvantag-ing holders of bonds consideredlower quality or illiquid, whenmarkets become stressed again.

The current structure of inter-est rates on long-dated bondsdoesn’t mostly represent goodvalue for investors, who need toallow for these bonds dropping invalue as and when yields rise.Also, bond markets are likely tofavour investors in bond fundsthat seek absolute returns rela-tive to bond funds that measuretheir performance against that ofthe bond market.

The hunt for yield has also ledinvestors to favour shares well-placed to pay good dividends.The need is for the investor tounderstand and accept the risks,and be selective in the shares theypurchase.

Some investors are reacting tothe outlook for interest rates byborrowing cheaply to finance ad-ditional investments. Again, therisks of this strategy need to becarefully thought through, par-ticularly given the recent gains inshares and property.

So much depends on the indi-vidual investor’s needs and ca-pacity to accept risk. Quite a fewinvestors, including younger andmiddle-aged members of ac-cumulation super funds, may beholding excessive amounts ofcash and term deposits; in somecases, this is the result of neglectrather than intent. With SMSFsreporting $160 billion in cash andterm deposits (30 per cent of totalassets), there must be investorswho could look at lifting theirasset allocations to shares, prop-erty, higher-yielding bonds andinfrastructure funds, and not justbecause interest rates are cur-rently so very low.

But other older investors needto have enough safe assets todraw on; otherwise, they could beforced to sell good growth assetsat lower prices.

For some, the scope to switchaway from cash and term depos-its is limited.

Don Stammer chairs QV Equities, is a director of IPE, and is an adviser to the Third Link Growth Fund, Altius Asset Management, Philo Capital and Centric Wealth. The views are his alone.

DON STAMMER

Source: Bloomberg

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Overseas investments can be a minefield for SMSFs

HOW often do we hear howcheap overseas properties havebecome … especially if you arebuying in Australian dollars?

There are endless stories ofSydney apartments being worthmore than French villas … and it isbeyond doubt that bargains awaitthose who have the confidence,skill and energy to seek out over-seas property investments.

There are no restrictions on aSelf Managed SuperannuationFund purchasing a property over-

seas as long as the transactioncomplies with the superannuationlaw. However, before enteringinto these transactions, an SMSFtrustee should talk to a reliableSMSF adviser, as some areas ofthe superannuation law can bequite tricky to comply with. Hereare some things to consider:

Trust Deed and InvestmentStrategy: The SMSF’s Trust Deedand the investment strategy mustallow for overseas property in-vestment. Property owner: If theproperty is owned by a relatedparty of the SMSF then unless theproperty meets the definition of abusiness real property (BRP), theSMSF cannot acquire it from therelated party. A BRP is any prop-erty used wholly and exclusivelyin a business.

Sole purpose test: The reasonto purchase the overseas propertymust be to provide retirement

benefits for SMSF members.Therefore, SMSF members can-not live in the property or use itduring their overseas holidays.

Related party transactions:The property cannot be leased to arelated party of an SMSF unless itis a BRP or the value of theproperty is not more than 5 percent of the total value of theSMSF’s assets.

Separation of assets: All docu-mentation in relation to the pur-chase must clearly identify theproperty as belonging to the trus-tee of the SMSF. If the property ispurchased under a limited re-course borrowing arrangement,

then the legal owner must be thetrustee of the bare trust.

Arm’s length: The purchaseprice, rent received and expensespaid on the property must be atthe true market rate.

Non-geared related entity: Ifthe property cannot be owned di-rectly by an SMSF, but must bepurchased via a Limited LiabilityCorporation (LLC) establishedunder the laws of the foreigncountry, then the LLC must satisfyall the requirements of a non-geared related entity under thesuperannuation law. A commonmistake made by SMSF trustees iswhere the LLC holds a bank ac-count in the foreign country that isnot an authorised deposit insti-tution under the Banking Act1959. If the LLC does not meet therequirements of the superannu-ation law, then the value of theproperty must not exceed 5 per

cent of the value of the SMSF’stotal assets.

No charge over the property: Ifthe property is purchased usingthe SMSF’s cash there must not beany charge placed over the prop-erty. Confirmation of this may bedifficult to obtain as documenta-tion provided by the foreign coun-try may not be similar to anAustralian register of titles.

Overseas investments can becomplex and risky due to the lawsand customs of the foreign coun-try and therefore SMSF trusteesneed to examine these invest-ments carefully.

Monica Rule is author of the Self Managed Super Handbook — Superannuation Law for Self Managed Superannuation Funds in plain English.

www.monicarule.com.au

MONICA RULE

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Source: Eureka Report, Bloomberg

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SIERRA WIRELESSNXP SEMICONDUCTORSSILICON LABORATORIES

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They can be complex and riskydue to the laws and customs of theforeign country

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