AUD Impact, page-27

Quite correct Mars.

The issue of scale probably does not relate to relative sizes at all, but rather on the concept of critical mass. Beyond the critical mass required, scale advantages fall away. The idea is that due to idiosyncratic cost and revenue structures, scaling for each industry has a different critical mass due to the level of fixed costs required upfront. For example, a software company may have a lower critical mass than a manufacturer.

I would venture to suggest that FLT reached critical mass in Australia in about 2012 when EBIT/TTV reached 3% and then plateaued. At that point, TTV was $9.2b.

So for now, we just need to watch the relevant metrics for the rest of the world, such as total TTV increases, EBIT/TTV and TTV/Business Units. The hypothesis is that Australian/NZ metrics are likely to stay stagnant or may even decline moderately, whilst the metrics for Rest of the World continue their upward trajectory until the operations reach their critical mass. Up till Dec 2014, the numbers published by FLT is consistent with this hypothesis.

The other important consideration is price. By my reckoning, FLT generates excess capital of roughly $300m per annum. It has $500m of company cash. Therefore, current market capitalisation of $3.5b implies that FLT will have no growth, and a lifespan not exceeding 10 years.