Expert Comment: Ranmore’s Sean Peche reacts to Intuit AI expansion

Sean Peche, Founder and Portfolio Manager at the global equity investment firm Ranmore Fund Management, comments following today’s news that Intuit is expanding its AI capabilities across QuickBooks and its wider mid-market offering.

Ranmore recently began buying Intuit following a 70% fall in its share price, with concerns around the potential impact of AI on software businesses weighing heavily on the stock.

Sean believes the market has become overly pessimistic about the threat AI poses to Intuit, arguing that the sell-off has created an opportunity to buy a high-quality, growing business at a significantly more attractive valuation.

Sean Peche, Portfolio Manager at Ranmore Fund Management, commented:

“A key to protecting the downside is not overpaying for companies and investing with a margin of safety. Value investors are often derided for not owning high-quality, growing businesses. We like growing businesses just as much as the next person, we are just cautious about what we pay for expected growth. For us, price is the most important variable in determining future returns and paying high prices for expected growth leaves little margin of safety when expectations are wrong.

“However, if we can buy a growing business at a knock-down price where we are not paying for growth, we pounce. In June we began buying Intuit, the US business software company that owns Quickbooks, Turbotax, Mailchimp and Creditkarma. Intuit is a very high-quality business that we’ve long since admired with 100 million customers, annuity cash flow and a 10yr track record of compounding revenue and EPS at 16% and 26% per annum. The problem has always been the valuation. We could never justify paying an average multiple of 35x forward earnings over this period. However, a 70% fall over the past year, as AI fears hit software stocks, meant it was now trading at less than 12x forward earnings.

“As for the AI fears, we’re not too concerned because, unsurprisingly, we’ve seen no evidence of accountants using AI to rebuild an accounting package costing ~ $50 / user per month.”